Should I Pay Off My Mortgage Early?

A mortgage is most people’s biggest debt. So when you have spare cash, it is natural to ask if you should clear it sooner.

The short answer: it can save you a lot of interest, but it is not always the best use of your money. It depends on your mortgage rate, any fees for paying early, your savings and your other debts.

This guide sets out the pros, the costs and what to check before you decide.

Why paying off early can make sense

• You pay less interest. Each pound you pay off stops costing you interest for the rest of the term. Over 20 or 25 years, that adds up.
• You can be debt free sooner. Some people want the mortgage gone before they retire or before their income drops.
• Your next deal could be cheaper. A smaller loan means a lower loan to value. When your deal ends, a lower loan to value can open up better rates.
• Your monthly costs can fall. Some lenders lower your payment after you overpay. Others keep it the same and shorten the term. Ask your lender which they do.
• Peace of mind. For some people, owning their home outright matters more than the maths.

Reasons to hold back

Early repayment charges. Most fixed and tracker deals charge a fee if you pay off too much during the deal. The fee is often a percentage of what you repay, and it tends to fall each year of the deal. Many lenders let you overpay up to 10% of the balance each year without a charge. Check your mortgage offer or ask your lender for the exact terms.

Your savings may earn more. Compare your mortgage rate with what your savings earn after tax. If savings pay more than your mortgage costs, keeping the cash may leave you better off. If your mortgage rate is higher, paying it off often wins.

You need a safety net. Money paid into your mortgage is hard to get back. Most people keep three to six months of spending in an easy access account first.

Other debts cost more. Credit cards, car finance and personal loans often charge far more than a mortgage. Clearing those first usually saves more.

Your pension may be a better home for spare cash. Pension payments get tax relief, and your employer may add more if you pay in more. The money is locked away until later in life, so weigh that up too.

Ways to pay it off sooner

Regular overpayments. Add a set amount to your monthly payment, within your lender’s yearly limit. Small sums make a difference over time.

A lump sum. If you have a bonus, an inheritance or savings you won’t need, you can pay some off in one go. Time it with your deal’s limits, or wait until the deal ends when there is often no charge.

A shorter term when you remortgage. When your deal ends, you can choose a shorter term. Your monthly payment goes up, but you pay less interest overall. A broker can show you the numbers side by side. See our remortgage advice page.

An offset mortgage. Your savings sit next to your mortgage. You don’t earn interest on them, but you don’t pay interest on that part of the loan either. You can still get at your money if you need it.

Try our mortgage calculator to see how a different term or loan size changes your payments.

Before you decide

1. Find your mortgage rate and when your current deal ends.
2. Check your offer for early repayment charges and the yearly overpayment limit.
3. Make sure you have an emergency fund you can reach.
4. Clear any costlier debts first.
5. Compare your mortgage rate with what your savings earn after tax.
6. Think about your pension and any big costs coming up.
7. Ask your lender how an overpayment will change your payment or term.

Frequently asked questions

Is it better to overpay my mortgage or save?

It depends on the rates. If your mortgage costs more than your savings earn after tax, overpaying often saves more. Keep an emergency fund either way.

How much can I overpay without a fee?

Many lenders allow up to 10% of the balance each year during a fixed or tracker deal. Limits vary, so check your mortgage offer.

Will overpaying lower my monthly payment?

Some lenders lower your payment. Others keep it the same and shorten your term. Ask your lender which applies to you.

Can I get my overpayments back?

Usually not, unless your mortgage has a payment holiday or borrow back feature. Treat overpaid money as spent.

When is the best time to pay off a large amount?

Often when your deal ends, as there is usually no early repayment charge then. It is also a good time to review your whole mortgage.

Should I use my mortgage to pay off other debts?

That is a different question with its own risks. Read our guide: Should I use my mortgage to pay off my debt?

Your home may be repossessed if you do not keep up repayments on your mortgage.

This guide is general information, not advice. Please speak to an adviser about your own situation.