Should you Pay Off Your Mortgage Early?

  • December 14, 2023
  • December 15, 2023
  • Shaz Nawaz
  • 12 min read

As a property owner, you know that a mortgage is a substantial financial commitment. There are various factors to consider before getting a mortgage. Not to mention that it is challenging to pay off your mortgage. Therefore, it is important to know that you can pay off your mortgage early and save thousands of pounds. This guide will cover how to do just that and more.

First, let’s discuss the criteria for getting a mortgage in the UK. Then, we can discuss how you can pay it off early.

Who Can Obtain a Mortgage?

In the UK, no legal restrictions apply to any adults who are getting a mortgage. You can take out mortgages in the UK even if you are a non-resident. However, the terms will vary according to your lender.

Although each building society or bank has its own unique requirements, the key factors are the following:

Your Age

You pay off home loans over a long period. Thus, older age groups find it more challenging to take out a mortgage.

Usually, building societies and banks do not reject older applicants. Yet, they are likely to ask for a larger initial deposit. Furthermore, they will limit the amount of time for making the mortgage repayment.

Job Security and Income

When offering mortgages, lenders must confirm that you can make the repayments. They need to calculate the risks of granting you a mortgage. As a result, freelancers and self-employed workers are at a disadvantage.

You must provide evidence of earnings. The amount the lender thinks you can pay back determines the amount you can borrow.

Credit History

To determine whether you qualify for a mortgage, they will check your credit history. It is the same as with other forms of credit and loans.

Lenders are reluctant to grant you a mortgage if you have a low credit score or bad credit. In this case, the best solution is to try to boost your score. You can do so by making sure you are listed on the electoral register and paying off any outstanding debts.

How to Pay off Your Mortgage Early

Following are the ways for you to pay off your mortgage early:

Making an Overpayment

The most effective method to pay off your mortgage early is making overpayments. You can decrease the amount of outstanding balance and save money on interest by paying more than the monthly payment.

Here is an example to elaborate:

Suppose your monthly mortgage payment is £1,000. Then, you can increase it to £1,200. The additional amount will help pay off your mortgage quicker.

Please note that the extra payment contributes to paying off the principal directly. This is the amount of money you took out as a loan to purchase your house. You can lower the amount of interest that you need to pay for the duration of the mortgage by paying off the principal hastily.

Switching from Monthly Payments to Bi-Weekly Payments

You can make an additional payment every year if you switch from monthly payments to bi-weekly payments. As a result, you can pay off your mortgage quickly. Moreover, you have the benefit of saving money on interest.

Let us look at an example:

Your monthly mortgage payment is £1,000. Every two weeks, you pay £500. Thus, in a year, you make 26 payments. This equals to 13 monthly payments.

Making a Lump Sum Payment

If you receive a bonus or inheritance, you can put it towards paying off your mortgage. Any extra money you get is helpful in paying it off. In the long run, you will lower the outstanding balance by making a lump sum payment. Also, you will end up saving money on interest. Remember to confirm with your lender before doing so. Ask them if there are any restrictions or early repayment charges on lump sum payments.

Re-Mortgaging to Get Better Interest Rates

It is crucial that you keep an eye on your mortgage interest rate. It makes a substantial difference to the cost of your mortgage and your monthly repayments. You can save significant money on interest payments over the duration of your mortgage by searching for better interest rates. Alternatively, you can secure a better deal by re-mortgaging with a new lender. Before you decide, make sure to consider any fees or early repayment charges that come with re-mortgaging.

Shortening the Mortgage Term

You also have the option to shorten your mortgage term to pay off your mortgage early. To switch to a shorter mortgage term, you should be able to afford higher monthly payments. Although this increases your monthly payments, you can still substantially lower the amount of interest you owe on the mortgage.

Benefiting from Offset Mortgages

You can offset your savings against your mortgage debt through an offset mortgage. This will end up lowering the amount of interest you owe on your mortgage. To elaborate, here is an example. If you have a mortgage of £250,000 and savings of £40,000, you will only need to pay interest on £210,000.

By applying these methods, you can gain control over your mortgage and possibly pay it off quicker than you imagined. Before you make any significant financial decisions, make sure to reach out to your mortgage adviser. It is even more crucial when paying off your mortgage early.

What are the Advantages of Paying Off Your Mortgage Early?

Let us look at the positive side first.

You may earn a decent wage that allows you to save, or perhaps you inherit money. Or maybe you make a lump sum through investment. Regardless of the method, you can pay off your mortgage early.

Now, let us discuss the advantages of doing so.

They are as follows:

1. Removing Excess Interest

You need to pay interest along with the amount you borrow to pay for your home. Usually, the amount of interest is substantial.

It does not matter which type of mortgage you choose. The length of the repayment terms determines the amount of interest you end up paying. Longer terms result in more interest.

It is possible to lower your interest costs considerably by paying your mortgage off earlier.

Nevertheless, you should know that certain mortgage companies can penalise property owners for doing so. The reason is that they will lose their interest.

2. Living with No Debt

For most people in the UK, their mortgage is the largest debt they owe.

Most probably it your highest monthly instalments. Also, if you fail to make payments throughout the year, there are heavy consequences.

You will have more money to spend on other expense if you clear your mortgage. With the money you save, you can refurnish your home or book a holiday.

3. Having Your Own Home

After you settle your mortgage, you own the property officially. You are free to do what you want with it.

There will no longer exist any restrictions on renting, selling, or giving the property. You can call this property your home.

What are Disadvantages of Paying Off Your Mortgage Early?

Undoubtedly, there are plenty of benefits to paying off your mortgage early. However, what are the drawbacks?

Following are the downsides when paying off your mortgage earlier than anticipated:

1. Unforeseeable Early Settlement Penalties

The idea of early settlement fees is not likely to come up as not everyone has the chance to settle their mortgage early.

On your mortgage contract, these fees are called exit fees or early repayment charges (ERC).

The lender calculates their part of the income on the deal when granting your mortgage. This involves the months-worth of interest charges that extend the duration of your contract.

If you decide to end the deal early and settle, they end up losing all those months of income.

Of course, everyone must pay their bills and want their share of the income. Therefore, they impose penalties on those who want to pay off their mortgage early. They do so to mitigate their loss.

2. Losing Access to Tax and Interest Benefits

In case there is interest on your savings, you must examine if the interest exceeds the amount of your monthly mortgage repayments.

Leaving your savings in the account can be beneficial for you as you are accruing interest to make a profit. This is the difference between the interest you earn and the amount you pay for your mortgage.

You have the option to use the interest in your savings to contribute to your monthly mortgage payments. Furthermore, you must consider your pension.

It depends on your pension pot and age, whether you can benefit from contributing towards your retirement instead of your mortgage.

There are situations where the tax advantage of it is more beneficial. However, that is not always the case.

3. Ignoring the Advantages of Giving Your Higher Interest Borrowing Priority

A lot of people owe multiple forms of debt. It is not only the mortgage on their homes.

You can find other forms of debt with higher interest charges if you compare your debts carefully.

For example, credit cards and car finance have higher interest rates.

Therefore, paying off your smaller debts with higher interest rates is probably more beneficial than paying your mortgage off earlier.

As a result, you will have extra monthly money to reduce your mortgage.

Questions to Ask Yourself Before Making Early Mortgage Repayment

Is it better to save or pay off your mortgage early? You should answer the following question so that you can decide.

Are There Any Other More Expensive Debts You Owe?

Now, what are expensive debts? Well, they are the ones that cost you a lot to pay off over time.

For example, over a year, catalogue accounts and credit cards charge a high rate of interest.

Unsecured loans are also expensive debts, as the interest rate is drastically higher than the cost of your mortgage repayment.

Before you think about reducing your mortgage, you should pay off more expensive debts. Remember to remain cautious about racking them up again.

Are You Contributing Funds into a Pension Scheme?

Since the government tops up your contributions with tax relief, pensions are a tax-efficient saving method.

Moreover, your employer should also contribute if you have a workplace pension.

In case you do not have a pension, it is essential to consider paying towards one. That is, if you have enough money to spare.

Starting early means you grow your retirement pot sooner. You can get more by paying into a pension than you would save in mortgage interest. This is because of the tax relief from the government and contributions by your employer.

Is it Possible to Get a Better Return on Your Savings?

It is better to add to savings if you are already contributing towards your pension scheme instead of your mortgage. This only works if you can get your hands on an investment product or savings that offers a better rate of return than the one on your mortgage.

What Else Should You Consider Before Paying Off Your Mortgage Early?

Once you answer the above questions, you should also consider doing the following:

Set Aside Some Money in Reserve

You need to save up enough money to last for a minimum of three months before paying your mortgage off early.

Do Charges Apply to Overpayment of Mortgage?

It is necessary to check your mortgage deal. This way you can get a clear idea of how charges can cut into any savings that you get from overpayment of mortgage.

Charges can apply for making a monthly payment that exceeds your agreed limit. The same is applicable if you pay off your mortgage early.

Please note that there are plenty of lenders that will allow you to overpay up to 10% a year without imposing penalties.

Is a Flexible or Offset Mortgage Available to You?

Through a flexible mortgage, you can overpay your mortgage and then draw back the money if you require it. You can do so without charge. This includes offset mortgages.

Is it a Good Idea to Overpay on Your Mortgage?

Although it may seem ideal to make overpayment on your mortgage, it is not necessarily true for everyone. You should consider the following before you decide to pay off your mortgage early:

Is it Possible to Make Overpayments on Your Mortgage?

You can contribute extra to your mortgage to save money if it has an annual overpayment allowance. However, you should remain within the limit to avoid any early repayment charges.

Do You Owe Any Expensive Debts?

Higher interest rates apply to overdrafts, credit cards and loans as compared to mortgages. Therefore, you need to consider pay these off first before you make an overpayment on your mortgage.

Have You Set Up an Emergency Fund?

If you do not have an emergency fund in place, it is a good idea to do so. You should build up savings prior to making overpayments. It is ideal to have 3 to 6 months’ worth of living expenses as your emergency fund. As a result, you can deal with an unexpected bill coming your way.


To summarise, whether you should pay off your mortgage early depends on your personal circumstances. There are plenty of ways to do so, such as lump sum payments, reducing your mortgage term, and overpayments. Indeed, there are several benefits to paying your mortgage off earlier than anticipated. However, there are drawbacks as well. Therefore, it is always best to reach out for expert advice before you decide.

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