A mortgage can be a hard weight to shift and isn’t always a particularly welcome prospect. However, the ONS statistics released in 2023 show us that of 24.9 million households across England, 6.5 million had a mortgage or other form of finance being used to pay for them.
With an average outstanding mortgage debt of £133,508 and an average repayment taking around 30-40 years, it is no wonder homeowners look for ways to clear this financial burden much sooner.
Luckily, for those who are able, paying off a mortgage sooner than its natural endpoint is possible. It might take a little work and potentially some financial penalties before you can be free of the debt. In this blog, we’ll explain how it can be done.
Can I pay off my mortgage sooner?
Yes, you can pay off your mortgage sooner than its natural completion date, but lenders are clever and thrive off the interest you pay them. As a result, how much extra you can pay back to reduce the mortgage is often capped, and any payments above this amount result in additional charges being added. This will be covered below in more detail.
Whilst lenders do like to claim as much interest as possible, they are open to you settling your debt with them quickly. You’ll just have to find a payment option that aligns with your current lifestyle and any other financial commitments you may have.
How can I pay off my mortgage sooner?
There are typically three ways you can help clear your mortgage balance sooner. You’ll need to speak to your lender first to see whether there are any specific terms & conditions to meet, but once you get the green light, you should be able to proceed in any of the methods shown below:
Increasing your monthly payments
Speak with your lender to see whether you can add a little extra to your monthly payments. You’ll technically be overpaying, which will then reduce the amount of time it takes to clear. However, lenders may put a limit on how much you can increase your monthly payments by.
A fixed-rate mortgage, for example, is normally capped at 10% of the total loan amount per year. You’d need to calculate how much more this equates to per month, and with interest compounding, your monthly increase may only make a small dent.
Should you be on an SVR, you might find that there are no restrictions upon how much you can increase your payments by; however, it is always advisable to speak to the lender first.
Pay a lump sum
If you have managed to save a substantial sum, you could use it to pay a portion of your mortgage off. Just be aware that, as with increasing your monthly payments, there is likely to be a cap. You’ll only be allowed to pay a certain percentage in a year; if you were to pay more than this, you’ll likely face an ERC (early repayment charge). Again, speak to your lender in advance, find out what can be paid and then decide whether to reach this cap or exceed it. Just be aware, an ERC can be substantial.
Reduce the mortgage term
If you have had a change in circumstances and now have more disposable income, you could look at using it for your mortgage. You would need to speak to the lender to prove your new affordability, and depending on how much more you are paying, you’ll find yourself paying less interest and becoming debt-free much sooner.
How much will an ERC be if I pay my mortgage sooner?
The cost of an ERC will depend on the lender. Their terms within the mortgage agreement can be quite specific and could mean that what you overpay on your mortgage is actually dwarfed by the charge levied by the lender.
An ERC is calculated based on the outstanding balance of the mortgage and is taken as a percentage of this amount. You’ll normally see this set at around 1-5%, with it decreasing as the length of the mortgage reduces.
This isn’t to say you cannot pay your mortgage sooner, though. If you stick to the lender’s limit of how much you can overpay each month, you’ll clear the debt sooner and avoid the early repayment charge.
What are the benefits of paying off my mortgage sooner?
Paying off your mortgage sooner means you are free from debt much sooner.
In most cases, you aren’t dropping a sum that clears the mortgage into your lender’s account; you are instead making monthly overpayments that chip away at the debt balance. This does stand to give you the benefit of being debt-free, but it will just take a little time.
Making overpayments to pay off your mortgage sooner will mean:
- You’ll reduce the mortgage balance faster, meaning you pay less interest overall. More of your cash services the debt than being swallowed up by high rates
- You’ll have a lower LTV. Should you need a new mortgage product for this property in the future, with a lower LTV, you’ll be in a better position to be offered more preferential rates
- You’ll beat interest rate changes! If you overpay when rates are low, your overall debt will be lower when rates rise again. You’ll have less debt being hit by the more expensive rates, giving you a further long-term saving
Should I pay my mortgage off sooner?
In an ideal world, yes. Freeing yourself from debt and all the interest that comes with it will give you much more freedom for holidays, home improvements, supporting the family, and so much more. However, before committing to making frequent overpayments or making a large one-off payment, you should consider the following:
Do you have other debts?
If you have piled up on credit cards or other loans, you might be better off looking at solving this financial conundrum first. The interest rates on loans and credit cards are significantly higher than those on a mortgage. Whilst clearing a mortgage quickly might be the goal, you could find you are worse off if you choose to tackle that debt first and not the ones charging you high levels of interest.
Do you have savings in reserve?
Paying off a mortgage is a big step, but if this depletes your emergency fund, it could all be for nothing, especially if you have to take out other loans to help you get by or cover any unexpected expenses. Aim to have around 3 months’ worth of funds in reserve before you start making additional payments on your mortgage.
Is there an ERC?
Find out if an ERC is likely to be due. Depending on how much this is, you could make a dent in your mortgage, but end up paying more than that amount in charges. It may be better to pay off slightly less and avoid the charges than pay off more and be penalised.
How much sooner can I pay off my mortgage?
You can, in theory, pay off a mortgage at any time, but the earlier you pay it, the larger the early repayment charge will be.
You’ll need to speak to your lender and inform them of your wish to clear the mortgage. They will issue you with a redemption figure showing a final balance that covers the mortgage balance and any charges they may add to it. You then pay this amount, and your mortgage is cleared.
Just be aware, as touched upon earlier, the ERC can dwarf the amount you are repaying, so you should check in advance what effect paying a mortgage sooner may have.
Paying off your mortgage earlier can be hugely beneficial, but it does come with risk. You should always speak to your lender or an expert mortgage broker to learn more about specific terms and charges.
At Mortgage Saving Experts, we use our years of experience to help homeowners find the most affordable mortgage options. Whether searching for a suitable buy-to-let mortgage or seeking advice from first time buyer mortgage brokers, we are here to help. With no obligation and completely impartial advice, we set you on the path to homeownership today! Reach out to us now for help securing your mortgage.
