Complete Guide to Repaying Your Mortgage Early

Repaying your mortgage sooner rather than later sounds like a good idea, but there are important considerations before choosing to do this. Depending on your mortgage deal, paying your mortgage early could result in paying out more money than necessary. In this guide, we'll help you decide by examining the advantages and disadvantages of early mortgage repayment, what to consider beforehand, and the different ways you can pay off your mortgage.

Advantages of Early Mortgage Repayment

One of the main advantages of making early payments is your total loan cost will be significantly reduced. You'll save substantial amounts of money by not paying interest on the months you no longer need to. This also means you could pay off your home sooner and own it outright, giving you peace of mind that the debt is completely cleared.

Another major advantage is that once your mortgage is paid off, you'll have extra money available each month that was previously going towards mortgage payments. This can be used for savings, holidays, investments, or anything else you'd like to do with the additional income.

Disadvantages & Early Repayment Charges

One significant disadvantage of repaying early is potential early repayment charges (ERCs) you may need to pay. Lenders charge these fees because, for example, if you're on a fixed mortgage deal, the lender would have expected to earn a certain amount of interest, and if you pay off your mortgage quicker, they lose out on that expected income.

The cost of ERCs depends on how much money the lender lent you and how long you've been in the deal. Generally, the further along you are in your deal, the lower the fees become. However, speak to your lender as most allow you to make overpayments of up to 10% of your mortgage balance per year without any penalty charges.

When Not to Overpay Your Mortgage

Something important to consider is if you have other debts such as credit cards or car finance, it might be best to pay these debts off first. This is because interest rates for mortgages are usually lower than other forms of debt.

Emergency Fund Planning

Before making early mortgage repayments, it's crucial to ensure you have adequate emergency funds. If you use all your money paying your mortgage back and an emergency occurs where you need money, it could result in your needing to borrow again at potentially higher rates.

Different Repayment Methods

Remortgage Considerations

Another option is to remortgage to a deal with lower interest rates. If you switch to a new mortgage provider, you might access better rates that could save money overall. However, consider that your current lender could charge early repayment fees.

Key Questions to Ask Yourself First

Before making the decision to make early repayments, there are important considerations you should evaluate:

Summary

Choosing whether to repay your mortgage early is a significant financial decision that requires careful consideration of multiple factors. While early repayment can save substantial amounts in interest and provide peace of mind, it's crucial to weigh this against potential penalty charges, opportunity costs, and the need for financial flexibility.

Remember to prioritise high-interest debts, maintain adequate emergency funds, and consider whether your money might work harder in other investments. The key is finding the right balance for your personal financial situation and long-term goals.

For expert advice on mortgage strategies and to explore your options, consult with our qualified mortgage advisors who can provide personalised guidance. You can also read our comprehensive guide to mortgages for more information.