How to pay off your mortgage early
Clearing your mortgage sooner saves interest. Here are the main ways to do it, with worked examples and the limits to check first.
The examples used here
The figures assume a £200,000 repayment mortgage at 4.5% over 25 years. The payment is about £1,112 a month and the interest over the full term is about £133,500. You can test your own numbers in the mortgage overpayment calculator.
1. Overpay a little each month
Paying extra every month cuts the balance faster, so less interest builds up. An extra £100 a month saves about £21,100 of interest and clears the mortgage about 3 years and 6 months early. An extra £300 a month saves about £47,700 and ends it about 8 years early.
2. Pay lump sums
A bonus, inheritance or savings can go straight onto the balance. A one-off £10,000 early on saves about £19,300 and clears the mortgage about 2 years and 2 months early. The earlier a lump sum goes in, the more interest it saves.
3. Choose a shorter term
At remortgage you can ask for a shorter term. Over 20 years instead of 25, the payment rises from about £1,112 to about £1,265 a month, and total interest falls from about £133,500 to about £103,700. This commits you to the higher payment, unlike overpaying, which you can stop.
4. Keep your payment when rates fall
If you remortgage to a lower rate, keeping your old payment sends the difference to the balance. At 3.5% the same mortgage costs about £1,001 a month, so keeping a £1,112 payment means an extra £111 goes in every month without feeling like a new sacrifice.
5. Consider an offset mortgage
With an offset mortgage, savings sit in a linked account and reduce the balance interest is charged on, while you keep access to the money. Rates are often higher than standard deals, so compare the total cost.
Check these before you start
- Early repayment charges. Many fixed deals let you overpay up to 10% of the balance each year without a charge. Going over can cost you, so check your terms.
- Reduce the term or the payment. Ask your lender to shorten the term, so the saving is not lost to a lower monthly payment.
- Emergency savings first. Money paid into a mortgage is hard to get back, so keep some savings.
- Higher-interest debts. Credit cards and loans usually cost more than a mortgage. See our debt advice guide if repayments are a struggle.
- Compare with saving. If your savings rate is close to your mortgage rate, saving may be better, especially after tax. See the savings calculator.
Where to learn more
These figures are estimates for illustration. This guide is not financial advice, and you should check your lender's terms.