Do you know what to keep in mind if you’re paying off a mortgage early? 

If you’re one of the many homeowners in the UK who are worried about affording mortgage payments in the current cost-of-living crunch, you may have thought about getting rid of your monthly mortgage commitments as soon as possible. 

Don’t lose money by making unnecessary mistakes! 

Are There Other Ways to Repay a Mortgage Early?

There are other ways to repay a mortgage early if you don’t have enough savings to repay the entire loan amount at once⁶.

These include:

• Paying more than you’re required to every month
• Asking your mortgage provider to shorten your term
• Moving to an offset mortgage
• Remortgaging
• Paying all the fees at the start

Let’s take a closer look at these options: 

By paying a bit more each month, you’ll be reducing the capital portion of your loan faster, thereby ultimately repaying the loan over a shorter period of time.

Remember

Contact your lender to ask by how much you’re allowed to overpay every month without incurring a penalty.

You could also ask your mortgage provider to shorten the term of your mortgage.

This will mean larger monthly payments, but you’ll be debt-free sooner.

Moving to an offset mortgage may be beneficial, as your linked savings account will be used to lower your total loan amount, which means you’ll save on interest⁷.

Another way to repay your mortgage early is remortgaging in order to benefit from a lower interest rate, which will make it possible to pay off the total loan amount faster. 

If your mortgage has very high fees attached, as many mortgages with low interest rates do, adding these fees to the loan amount and making an immediate overpayment at the start of the loan will mean you won’t end up paying interest on the fees⁸.

What if I Have an Interest-Only Mortgage?

If you have an interest-only mortgage, you’ll have to make sure that your overpayments are being used to pay off both the capital portion of the loan and the interest.

If you don’t, you won’t actually be paying off your debt.

What does that mean for me?

Ask your mortgage provider about switching to a repayment mortgage or a hybrid repayment/interest-only mortgage so you’ll be able to reduce the total loan amount and not just pay off the interest. 

Should I Pay Off Other Debts Before Paying off My Mortgage?

You should pay off other debts before paying off your mortgage if those other debts are more urgent and/or expensive.

What does that mean?

If you’re paying a higher rate of interest on your other debts, like credit cards, store accounts, or personal loans, you should settle those debts first in order to save more money in the long run. 

How Mortgage Overpayments Affect Your Credit Score

Mortgage overpayments can influence your credit score, but the impact is often misunderstood.

Regular overpayments reduce your outstanding debt, which can improve your credit utilisation ratio—a key factor in your credit score.

A lower ratio suggests you're using less of your available credit, which lenders view positively.

However, overpaying your mortgage might also reduce your overall credit activity, particularly if it's your primary form of credit.

This could potentially result in a slight dip in your credit score as lenders prefer to see active, well-managed credit accounts.

Balancing mortgage overpayments with other credit obligations is key to maintaining a healthy credit score.

Financial Moves After Paying Off Your Mortgage

Once the mortgage is paid off, homeowners can redirect their former mortgage payments towards other financial goals.

Increasing contributions to retirement savings, such as pensions or ISAs, is a prudent move, allowing for greater tax efficiency and long-term financial security.

Building an investment portfolio can also offer opportunities for growth and income.

Alternatively, homeowners might consider funding personal goals, such as travel, home improvements, or helping family members financially.

Establishing a robust emergency fund is also wise, ensuring liquidity for unexpected expenses.

By strategically reallocating funds, homeowners can optimise their financial situation post-mortgage and secure their future.

Common Questions

In Conclusion

Repaying your mortgage early could translate to enormous savings in the long run, but only if you’re aware of the possible pitfalls and penalties. 

If you’d like an illustration of the potential benefits of paying off your mortgage early, speak to an independent financial advisor. 

Contact your mortgage provider to check the terms of your mortgage and weigh up how much you’ll be saving in monthly interest payments against how much you could be earning by saving your money before you decide to pay off your mortgage early.