If you have a decent chunk of cash weighing down your purse, and you're wondering whether to put it towards your mortgage, you're in the right place.
Overpaying your mortgage can save you money in interest and clear the debt sooner, but it isn't always the right move. Whether it's worth it depends on your lender's overpayment limits, your interest rate, and whether you'd be better off keeping savings within reach or clearing other debts first.
Is it worth paying off my mortgage early?
Paying off your mortgage early could save you paying interest in the long run, as well as giving you one less monthly payment to worry about further down the road. For many people, being mortgage-free can also bring peace of mind.
However, paying off your mortgage isn't always the best use of a lump sum though. You might be better off paying off other debts, or putting the cash into savings or investments first.
The pros and cons of paying off a mortgage early
There’s loads to consider and everyone’s a bit different. Let’s look at the pros and cons to help you decide if it’s right for you.
The pros: benefits of paying off mortgage early
Become mortgage-free sooner - If your mortgage is your only debt, paying it off means one less monthly payment and the freedom that comes with being mortgage-free (the dream!).
Save on interest – Paying off your mortgage early could reduce the total amount of interest you pay over the life of your mortgage (also called, the term).
Free up your monthly budget – Once your mortgage is paid off, you’ll have more money to play with each month. You could put the money you were spending on repayments towards savings, investments or just splashing out on biscuits and holidays. Being mortgage-free also gives you more financial freedom.
Whether you want to work less, spend more or focus on hobbies and other goals, the choice is yours.
The cons: disadvantages of paying off mortgage early
You could face early repayment charges – Paying off your mortgage early, or making a large overpayment, could mean paying an Early Repayment Charge (ERC). Check your mortgage terms before deciding.
You may have other debts to pay first - If you have other debts (store credit, credit cards, phone bills, car loans etc.) it could make more financial sense to tackle these first, particularly if they have higher interest rates.
You could have better uses for the money – Depending on your lifestyle and current plans, you may prefer to keep some money in savings, put it towards your pension or invest it rather than paying off your mortgage.
What options are there for paying off your mortgage early?
There are a few ways to pay your mortgage off early, whether you want to make smaller overpayments or clear a large chunk in one go.
Remortgage
Remortgaging could be a good chance to review your mortgage and see what deals are available. If you’ve already paid off some of your mortgage, you may have a lower loan-to-value (LTV), which could give you access to different rates.
Just remember to check for any fees or Early Repayment Charges before switching.
Check out our repayments calculator to see what your new repayments could look like.
Switch to an offset mortgage
An offset mortgage links your savings to your mortgage. Your savings are offset against what you owe, so you could pay less interest and clear your mortgage sooner.
Pay a lump sum
Have some extra money you’d like to put towards your mortgage? You could make a lump-sum payment to reduce what you owe.
Just keep in mind that this could affect your wider financial position, so it’s a good idea to get financial advice first.
Increase monthly payments
You could also increase your monthly payments to chip away at your mortgage faster. This could help you pay it off sooner and reduce the interest you pay. Make sure you check your mortgage terms first, as some lenders limit how much you can overpay without a charge.
Pay off your mortgage in full
Win the lottery? Did a rich aunty leave you her fortune in her will? If you have enough money available, you could clear your mortgage completely before the end of your term. Don’t forget to check for any additional charges, as these could affect whether it makes financial sense.
Does overpaying a mortgage affect remortgaging?
Overpaying your mortgage may put you in a stronger financial position when it’s time to remortgage.
Making overpayments is a great way to lower your loan to value (LTV). This is the amount of money you have borrowed, compared to your home’s value. Lenders look at your current LTV when you remortgage, and the lower your LTV, the more mortgage options are available to you, and at better rates too.
Read more about remortgaging to find out when you could benefit from switching to a new deal.
Speak to a mortgage adviser
Not sure whether paying off your mortgage early is the right move for you? A mortgage adviser can help you look at the bigger picture, from Early Repayment Charges to your mortgage rate and future plans.
Book an appointment with our team and find out more about exactly what a mortgage adviser can do to support you.
Something to bear in mind...
Frequently asked questions
This all depend on what you want and whether you can. Paying off your mortgage could save you money on interest and give you more disposable income. It’s not the right choice for everyone, so consider your entire money situation and get professional help before deciding.
If you have enough savings to clear your mortgage, paying it off could leave you debt-free. Make sure you still have enough savings for emergencies and other financial goals before choosing to pay off your mortgage in full.
Again, this depends on you. Both options can reduce the interest you pay and help you clear your mortgage sooner. The right choice depends on your circumstances, so speak to a mortgage adviser.
In 2022, more than half of all homeowners in the UK owned their home outright at the age of 61*. However, with people buying their first home later and longer mortgage terms becoming more common, this could change over time.
*Ons, 2024
Paying off your mortgage can cause a small temporary change to your credit score, but that shouldn’t be a reason not to do it. Your credit history will continue to reflect the mortgage after its paid off.