Watch our video below or read our five tips below and find out how you can repay your mortgage early. Even a small change can make a big difference to becoming mortgage free sooner.

It's easier than you may think and you may even be able to start your journey to being mortgage free today.


Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 07/12/2018

At a glance

  • You can overpay your mortgage to reduce your mortgage term
  • Check you do not have any early repayment penalties before making overpayments
  • You can also reduce your mortgage term when you remortgage and save years on your mortgage

Reasons to pay off your mortgage early

Most people with a mortgage would like to pay this off sooner rather than later. Standard repayment mortgages usually come with a term of 25-years, however there are now lenders offering longer terms of 30 years or more. This means that after 25 years or the duration of your mortgage term, your mortgage will be repaid to the bank or building society and you will own your home outright.
You can pay off your mortgage early by either overpaying on your mortgage or reducing your mortgage term. Over-paying during the earlier parts of your mortgage term will have a greater effect on reducing your overall mortgage costs. This is because the sooner you make payments, the sooner your mortgage balance reduces and the less in interest that accrues.
When you overpay your mortgage, this can reduce your mortgage term potentially by months and even years. Remember to check if your mortgage allows you to make overpayments, in some cases your lender may limit how much you can overpay in any 12-month period. If you exceed this limit, they make you pay an early repayment charge.
You can choose to reduce your mortgage term at the time you are due to remortgage. If you try to do this part the way through a mortgage deal you may find you will incur a penalty for changing the terms of your mortgage and will need to complete a new mortgage affordability assessment.

 

5 steps to pay off your mortgage early

Our video below outlines the simple steps you can take to pay off your mortgage early. We've also provided more information below in our five steps to get mortgage free.

1. Overpay your mortgage using savings

You could be paying out more than double in interest each month than you can earn from your savings accounts. If your savings earns less interest than the amount you pay on your mortgage, then you will save more money by using these to pay-off your mortgage balance. However, you should make sure that you keep the equivalent of at least three month’s salary as an emergency fund. The table below shows that if you have £15,000 in savings at 1% this will earn you £150 in interest in 12-months, compared to an interest cost of £492 for the same amount on your mortgage.

Balance Savings gross interest at 1% per year Mortgage interest at 21.5% in one year
£10,000 £100 £150
£15,000 £150 £225
£20,000 £200 £300

All calculations assume that interest is calculated and applied annually. Mortgage interest figures are maximums based on what you could pay on an interest-only mortgage over a 25-year term.

2. Remortgage to a lower interest rate

You could reduce your mortgage interest costs by remortgaging. If your mortgage does not have an early repayment charge and your new remortgage does not include a fee, then all you need to check is that your interest rate is lower to know that you will save money. If there is a fee then you will need to look at the total cost of borrowing including this fee. Our mortgage charts include this for you so you can compare easily. Alternatively, if you have an early repayment charge, then you should calculate the cost of this compared to how much you could save when taking a remortgage at a lower rate of interest. You may also find that your mortgage balance has reduced and that you can now remortgage to a lower LTV, for example, usually you can get much better remortgage rates at 75% LTV compared to 80%.

Find a new remortgage deal

Our remortage charts let you search the best remortgage rates and compare the total cost of a new remortgage including fees.

3. The next time you remortgage, shorten the term

When you remortgage you can see the impact of changing the term on your monthly repayments. You should aim to make these affordable but also at the shortest term you can manage.

Mortgage Repayment Calculator

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Moneyfacts tip

Moneyfacts tip Michelle Monck

A mortgage broker can help you find the shortest mortgage term at which the mortgage payments will still meet a lender’s affordability rules.

Use an offset mortgage

An offset mortgage has a savings account linked to your mortgage, the money held in your savings account is used to reduce your mortgage balance and thereby the total mortgage interest charged.
Usually you can choose whether to have this saving reflected in lower mortgage payments or a shorter term. If you wanted, you could also overpay and save even more money.

Pay mortgage fees up front

You can reduce your mortgage costs by paying fees up front then these and avoiding having interest added to these.

Moneyfacts tip

Moneyfacts tip Michelle Monck

You should always pay off other more expensive debt before looking to overpay or reduce your mortgage term.
Read our guide to getting to debt free.

How to pay off your mortgage early FAQ

Can I overpay a fixed rate mortgage?

Some fixed rate mortgages offer flexibility when it comes to overpayments, typically allowing homeowners to overpay by up to 10% of the total balance of the mortgage per year. You may have to pay a penalty if you go over this, and if you pay off your mortgage completely you will likely be hit with an Early Repayment Charge.
You should check with your mortgage lender or broker before overpaying, or check section 11 of your Mortgage Offer for more details.

Do I need to wait to remortgage to pay off my mortgage early?

You do not need to wait for your remortgage date to start making overpayments. As long as your mortgage product allows overpayments without penalty you should start these as soon as you want. If you want to reduce your mortgage term this will change your monthly mortgage payment and as a result your lender will want to run a new affordability check to make sure this remains affordable. This in effect means you are applying for a new mortgage, so should only be done if there are no early repayment clauses on your current mortgage.

Offset mortgage FAQ

Do I earn interest on my savings?

No. Your money repays a portion of your mortgage balance – you save mortgage interest instead.

Do I pay tax on the interest I save on my mortgage?

You're not liable for any tax on interest you save on your mortgage. Only if you earn interest on your offset savings – which is unlikely – will you have to pay tax, and then solely on any interest earned over your Personal Savings Allowance.

Are there any limits on how much I can save into the account without incurring an Early Repayment Charge?

Because you aren't physically repaying your mortgage, you don't have to pay any Early Repayment Charges.

Can I withdraw money from my savings pot?

Your savings remains separate to your mortgage and can be withdrawn depending on the terms of the account.

Can I make withdrawals from my offset mortgage??

You should check with your mortgage lender if your offset mortgage allows withdrawals.

What happens to my savings if my offset mortgage lender goes bust?

The first £85,000 of your offset savings are covered by the Financial Services Compensation Scheme.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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At a glance

  • You can overpay your mortgage to reduce your mortgage term
  • Check you do not have any early repayment penalties before making overpayments
  • You can also reduce your mortgage term when you remortgage and save years on your mortgage

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