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The following calculator uses JavaScript to instantly update loan payments based on changing any inputs. You can use it many different ways to figure your mortgage.

Mortgage Calculator UK
Mortgage Amount - £
Interest Rate - %
Term - Years
Calculate

Full Monthly Payment

£789.5

Interest Only

£345

Months

300

Total Interest Payable

£56,850.04

There are 12 months in a year, but our calculator is designed to input years and output months. If you would like to enter a set number of months in your goal time use the following conversion chart to convert any additional months into the decmal fraction of a year.

Entering Months as Decimals
  • one month: .083333
  • two months: .16667
  • three month: .25
  • four months: .33333
  • five month: .41667
  • six months:.50
  • seve month: .58333
  • eight months: .66667
  • nine month: .75
  • ten months: .833333
  • eleven month: .91667
  • twelve months: 1.000

Should I Overpay My Mortgage?

Pay Higher Interest Debts First

If you have other higher-interest debts it can make sense to pay those off first. If you have other investments which you are fairly certain will have superior returns, or get tax advantages for contributing to a retirement program it can make sense to fund those other options too.

Emotional Benefits of Overpayment

In general paying extra on your home is not simply just a financial decision. There is an emotional dividend beyond the interest savings in knowing your home is paid off, your family is secure, and you have one less thing to worry about.

Inflation and Interest Rates

Since the early 1980s interest rates have declined secularly in the developed world with central banks getting more aggressive with their market interventions. Globalization, technology and the internet were massive deflationary forces along with families having fewer children. Many of these deflationary benefits have already been felt across the economy and were associated with increasing financial asset prices as interest rates fell.

In response to the global COVID-19 crisis central banks intervened on a scale not seen since at least World War 2. For Valentine's Day the European Central Bank even published a love poem to loose monetary policy.

Money is a social construct. Loss of faith is a nonlinear process.

There's a reason people are bidding up Bitcoin, ridiculous cryptocurrencies, left-for-dead retailers like GameStop, and throwing money at hundreds of SPACs.

Eventually inflation will spill from the capital markets into the broader economy. When it does, the central banks which stoked it via ultra-loose monetary policy may not be able to stop it very easily. Such inflation could cause financial asset prices to drop (due to a higher risk-free benchmark & larger discount rate) while interest rates rise (making the carrying cost of serving debts higher).

Those who had paid extra on their homes will be able to better handle rate rises than those who made the minimum payments and are holding higher levels of debt.

Which is Better: Lump Some or Monthly Payments?

Mortgages charge interest on how much ever debt there is outstanding. Each month you pay off some of the principal and you pay off the interest that accrued that month.

If you make a large lump-sum payment then you are instantly reducing the remaining loan balance from that day forward. For exmample, if you had access to £10,000 and could apply the sum immidiately to a 3% loan then you can calculate how much you will save in interest monthly with the following equation:

monthly interest savings = lump sum * rate / frequency

£10,000 * 0.03 / 12
£10,000 * 0.0025 = £25 saved per month = £300 saved per year

The above example shows the monthly and annual savings you will enjoy with a lump sum payment. Those savings will be this month, next month, this year, next year, etc.

If you instead added an extra £833.33 monthly for a year you would make the same £10,000 overpayment, but it would be stretched out across time & so your savings would be less. Initially you would only save 1/12 of the £25 monthly savings.

If you stretched out the overpayment across multiple years then the monthly interest savings would be lower.

The sooner you can apply extra funds to your loan the more interest expense you save.

If you do not have a large lump sum set aside then paying extra monthly or shifting to accelerated biweekly payments can be advantageous as well. Either way you save on interest, but the sooner you pay exta the more you save.

How Will Changing Rates Impact My Payments?

If you believe interest rates will fall then you could remortgage at lower rates at the end of your fixed introductory rate term.

If you believe interest rates will rise then it makes a lot of sense to make extra payments on your mortgage to reduce the balance as much as possible before rates rise.

We also offer a calculator with amortisation schedules for changing loan rates, so you can see your initial loan repayments and figure out how they might change if interest rates rise.

Maximise Your Savings with Mortgage Overpayments

Buying a house involves serious financial planning and responsibility. You must have a good credit background, ample income, and a substantial deposit to qualify for a mortgage. And like most homebuyers, you likely chose a mortgage with the most affordable monthly payments. This ensures you can manage your budget to sustain timely payments. But overtime, as your income improves, you might consider early mortgage repayment.

Our guide will discuss mortgage overpayment and how you can use it to your advantage. We’ll rundown overpayment’s benefits and why it can help you secure more favourable remortgaging deals. We’ll also include different payment strategies which allow you to apply overpayments on your mortgage. Lastly, we’ll discuss its disadvantages and how to avoid early repayment penalty charges.

The Benefits of Mortgage Overpayments

House piggybank.

When you first took your mortgage, perhaps you didn’t think about making overpayments. But as the reality of a 25-year mortgage dawned on you, you likely reconsidered early repayment.

A 25-year debt is a long time, which you don’t want to be paying in retirement. With this concern in mind, the prospect of early repayment seems more favourable and reassuring. Thus, paying off your mortgage early takes a huge load off your shoulders. That’s one major debt off your list. You gain peace of mind knowing you own a home that your children can inherit.

Mortgage overpayments often beat returns from savings accounts. These days, it’s rare to find high interest savings accounts that yield large savings. But if you can obtain a higher rate on your savings accounts than you pay for your mortgage, savings accounts can be more favourable. However, if your mortgage rate is higher than your savings rate, which is more likely, then it makes better sense to overpay your mortgage. This will save a considerable amount of interest costs.

How much can you save? Based on a £200,000 mortgage at a fixed 3% APR, you can save over £5,000 if you make an overpayment of £50 per month. It will also remove more than 1 year off a 25-year mortgage term. Consider this example if you want to maximise your savings. If you make higher overpayments, you can further shorten your loan term and reduce your interest costs.

Flexible Additional Payments

Overpayments are easier to budget compared to taking a mortgage with higher monthly payments. It allows you to contribute a flexible amount toward your home loan, even if it’s just £50 or £100 per month. While the overpayment is small, it can still remove a few years off your loan term.

Meanwhile, if you receive large work bonuses or inheritance money, you can put a significant amount toward your mortgage. That is, of course, if your goal is to gain home equity sooner. If you do not have large debts or other more important expenses, prioritising mortgage overpayments will work for you.

Here are the advantages of making extra mortgage payments:

Reduce Your Mortgage Balance Faster

With regular monthly payments, your mortgage balance is paid down at a slow pace. It would take years before the mortgage amount you borrowed is diminished significantly, especially if you took a large capital. But by making overpayments, you effectively reduce your mortgage balance right away. Plus, you do not pay interest on the amount you overpay.

If you plan to make overpayments, speak with your lender first. Make sure they apply your overpayments toward your mortgage balance instead of the interest. Extra payments toward the interest do not in any way reduce the amount you borrowed.

Lower Your Mortgage’s Total Interest Costs

As your mortgage balance decreases, so do your interest charges. If you make overpayments, you substantially reduce the amount of interest paid over the life of your loan. This saves you thousands of pounds on your mortgage compared to just making regular monthly payments. And the higher the overpayment amount, the more interest you save, and the shorter your loan term will be.

Reduce Your Loan Term

Making mortgage overpayments effectively reduces your initial loan term. The time you can save will depend on the amount of overpayment you make. The higher the overpayment, the shorter your loan term will be. If you can afford it, consider making a higher overpayment on your mortgage. Even with as low as £50 per month, you can remove 1 year and 9 months off a 25-year term. It will also save £6,727 on total interest charges. This is based on a £200,000 mortgage balance at 3% APR with overpayments made at the start of the loan. Meanwhile, with extra £100 per month, you can remove 3 years and 4 months from the loan term. The total interest savings will amount to £12,438. Both calculations presume the interest rate remains at 3% APR. See the table below.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

Mortgage Details+£50 per month+£100
Saved time1 year 9 months3 years 4 months
Total interest£6,726.91£12,437.51

If you overpay £100 per month, you’ll save £5,710.60 more in interest expenses compared to paying extra £50 per month. This example shows that even with a modest amount per month, you can shorten your loan term and reduce your mortgage’s interest costs.

Build More Home Equity Faster

The more overpayments you make, the sooner you can build significant home equity. With overpayments, your loan-to-value ratio (LTV) decreases faster. LTV is a percentage that compares your mortgage balance with the value of the property. A lower LTV ratio means you’ve paid a significant portion of your mortgage.

Interest rates get cheaper as your LTV drops. Thus, it makes sense to make a higher deposit to reduce your LTV. Furthermore, having a lower LTV allows borrowers to obtain more favourable remortgaging deals. Most lenders reserve the best rates for borrowers with 60% LTV and below. With a significantly lower rate, you could potentially save twice over your initial mortgage.

For instance, if you’re planning to remortgage into a 5 fixed-rate loan, it’s crucial to have a low LTV. Once you secure a lower rate, you will save more on interest costs. And if you continue to make overpayments, you will further reduce your term and interest charges.

The following table shows examples of rates for 5-year fixed mortgages with corresponding LTV ratios. The rates were based on a £200,000 property with a 25-year term in October 2020.

LTV Ratio5-year Fixed Rates
90%3.05%
80%1.97%
75%1.75%
60%1.45%

Based on the example, the 5-year fixed mortgage with the highest rate is offered to borrowers with 90% LTV, which is 3.05% APR. But if you reduce your LTV to 80% upon remortgaging, you can obtain a 5-year fixed mortgage with 1.97% APR. That’s lower by 1.08%, which results in substantial interest savings. The lowest rate is offered to borrowers with 60% LTV, which is 1.45% APR.

But before you decide to make overpayments, it’s best to speak with your lender first. Mortgages usually come with early repayment charges. This typically applies to all types of mortgages during the first few years of the loan. If you’re not careful, you might have to pay steep penalty costs.

Beware of Early Repayment Charges

Early repayment charges (ERC) are penalty fees for paying off your mortgage early or overpaying beyond the allowed amount. It’s also charged when you decide to remortgage and change your interest rate before your current one ends. Most introductory mortgages come with an ERC, including fixed, tracker, and discount mortgages.

ERC takes a percentage of your mortgage balance, which is usually between 1% to 5%. But to know precisely how your lender applies ERC rules, speak with them first. It usually lasts for the introductory period of the mortgage. This is an extra cost that may forfeit any savings you make from overpayments.

Lenders use ERC to cover some of the interest they lose when you prepay your mortgage. Penalty fees are intended to discourage borrowers from overpaying or selling their home early. It also hinders homeowners from remortgaging before their current mortgage ends. To avoid ERC penalties, make sure to overpay within the allowed amount. Once the introductory period ends, you can start making higher overpayments.

How much can I overpay? Generally, most lenders allow borrowers to pay up to 10% of the mortgage balance per year during the introductory period. Anything beyond this amount is subject to early repayment penalty fees. According to the Financial Conduct Authority (FCA), early repayment charges must be stated as a cash value and should be a reasonable pre-estimate. To know your ERC amount, read the small print on your mortgage agreement, or speak with your lender to verify it.

How is early repayment charged? ERC penalties are usually tiered throughout the introductory period. This ranges between 1% to 5% of the mortgage balance. For instance, if you take a 5-year fixed-rate mortgage, the penalty fee is usually 5% for the first year. By the second year, this is reduced to 4%. Finally, during the fifth year, the penalty rate will be 1%. The earlier you make disallowed overpayments, the higher the penalty rate. And the higher your overpayment, the more expensive your ERC gets.

Let’s say you took a 5-year fixed mortgage on a £200,000 loan. You’re allowed to overpay up to 10% of the mortgage balance, which is £20,000. If you overpay below this limit, you won’t need to pay the ERC. However, if you paid £25,000 on the third year of the mortgage, you’ll incur a 3% penalty fee. As a result, you’ll be charged a 3% penalty on the extra £5,000, which is £150.

But depending on your lender, check how they apply ERC penalties. In other cases, for instance, if your mortgage balance is £200,000 and the ERC rate is 2%, you’re charged a penalty fee of £4,000 based on the balance. To be safe, do not pay over the allowed amount. Wait for the introductory period to end before making higher overpayments.

Overpayment Strategies

Presenting a bag of money.

Once you’ve decided to make overpayments, there are several payment strategies you can employ. You may choose to make regular monthly overpayments or make lump sum overpayments.

After speaking to your lender, they may give you the option to set up a new direct debit with an overpayment feature. If you choose to pay a lump sum, they will advise you to transfer the amount from your bank account to the mortgage account. Depending on your lender, they may allow you to connect your mortgage account to a mobile banking app. This lets you send overpayments almost anytime you have spare cash.

When you make an overpayment, your lender might provide you with two options. First, they’ll ask if you want to reduce next month’s payment using the amount you overpaid. Next, they’ll ask if you want to keep making the overpayments and reduce your term.

When your lender offers these options, always tell them you want to reduce your term. If you use the overpayment to simply reduce next month’s payment, it only means you’re paying a bit early. You don’t save as much on interest costs. But if your lender already agrees to reduce your term with regular overpayments, you’re halfway to achieving your goal.

Still thinking of how to make overpayments? Here are different methods you can apply:

Additional Regular Monthly Payments

You can opt to add an extra amount on top of your monthly mortgage payment. This is a practical option if you do not have large extra funds. It’s also easier to budget because you can decide how much additional payments you can put each month. For instance, you decide to add a maximum of £200 to your monthly payment, and a minimum of £50 if you’re short on cash.

Let’s take the example below. If you have a £200,000 mortgage at 3% APR, here’s how much time and money you can save if you make regular monthly overpayments. The following table presumes your mortgage maintains a 3% APR for the entire 25-year term. To achieve this, after the initial period, you must be able to remortgage at the same rate.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

Mortgage DetailsOriginal Monthly Payment+£50 Overpayment+£200 Overpayment
Monthly payment
(capital & interest)
£948.42£998.42£1,148.42
Pay-off Time25 years23 years 3 months19 years 1 month
Saved Timenone1 year 9 months5 years 11 months
Total interest£84,526.79£77,799.88£62,904.43

According to our example, your mortgage has a regular monthly payment of £948.42. If you don’t make overpayments, you’ll pay it off within the 25-year term. The total interest costs will be £84,526.79.

However, if you make a regular overpayment of £50 from the start of your mortgage, you can pay your mortgage in 23 years and 3 months. Your interest costs will be reduced to £77,799.88, which saves you £6,726.91 in total interest expenses. Meanwhile, if you make a regular overpayment of £200, you can pay your mortgage in 19 years and 1 month. It will decrease your interest costs to £62,904.43, which saves you a total of £21,622.35 in interest charges.

Thus, a small overpayment still saves you thousands of pounds. But if you make higher overpayments, you can lower your interest charges and further reduce your loan term. And depending on your arrangement with your lender, you can make overpayments anytime you have extra cash (using a mobile banking app).

Annual Lump Sum Equal to a 13th Payment

You can make a lump sum payment once a year. While most homeowners only make 12 payments annually, you can make a lump sum payment equivalent to a 13th payment on your mortgage. If you do this each year, you can significantly reduce your term and interest charges.

Consider this option if you prefer to make one overpayment a year instead of making overpayments each month. You can make your lump sum payment at the beginning of the year or toward the end of the year when you’ve saved enough extra funds. You can also time this when you receive a work bonus or your tax refund.

In this example, we’ll compare a regular mortgage payment with a lump sum 13th payment done once a year. The example presumes your mortgage rate remains at 3% APR. To make this possible, after the initial period, you must ideally remortgage to the same rate throughout the term. However, if you can remortgage to a much lower rate, that will be a more favourable deal.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

Mortgage DetailsOriginal Monthly PaymentLump Sum 13th payment
Monthly payment (capital & interest)£948.42£948.42
Overpayment0£948.42 (once a year)
Pay-off Time25 years22 years 4 months
Saved Timenone2 years 8 months
Total interest£84,526.79£74,375.33

The example shows you can pay your mortgage in 22 years and 4 months if you make a lump sum 13th payment each year. It will also save you £10,151.45 on total interest expenses.

One-Time Lump Sum Overpayment

Make a one-time overpayment if you have significant funds to spare. Perhaps you’ve stumbled upon a windfall from a lucrative business venture. Maybe a close relative left you with a large inheritance money. If you’ve saved a substantial amount over a few years, you may want to put some toward your mortgage.

The following example compares a large, one-time overpayment versus making regular mortgage payments. Again, the example assumes the interest rate remains at 3% APR for the 25-year term. To achieve this, borrowers must remortgage into the same rate. But of course, if you can remortgage to a much lower rate, you will save more on interest expenses.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

Mortgage DetailsOriginal Monthly PaymentLump Sum Payment
Monthly payment (capital & interest)£948.42£948.42
Overpayment0£50,000 (one-time payment)
Pay-off Time25 years16 years 10 months
Saved Timenone8 years 2 months
Total interest£84,526.79£41,335.14

Based on our example, if you make a £50,000 lump sum payment at the start of your mortgage, you can pay your mortgage in 16 years and 10 months. You will also save £43,191.65 on overall interest expenses. That’s a huge sum, which you can set aside for retirement savings and other important costs. Moreover, if you continue to make small monthly overpayments, you can further reduce your term and interest expenses.

Gradual Overpayments vs. Lump Sum

Generally speaking, if you have a large amount you can put towards your mortgage, it will yield more savings if you pay it now. A large overpayment immediately reduces your mortgage balance and future interest costs. In contrast, small overpayments every month gradually diminishes your balance. Meanwhile, the large overpayment has already eliminated future interest you might have paid on your mortgage. This immediately shortens your term and total interest expenses.

Fortnightly Mortgage Payments

You can apply overpayments by paying your mortgage on a fortnightly schedule. This means making half of your monthly payment every 2 weeks instead of once a month. In the US, this is commonly known as a biweekly payment plan.

Fortnightly payments follow the 52-week calendar year instead of the 12-month timetable. Because you make payments every 2 weeks, this results in 26 half payments, which is equivalent to 13 monthly mortgage payments. Before taking a fortnightly option, be sure to arrange it with your lender first. Most banks generally have a fortnightly payment system, but you must notify them beforehand to setup your account.

The next example compares how much you can save with a fortnightly payment schedule. It also shows how much you can save with a £50 overpayment on top of fortnightly payments. Again, this example presumes your mortgage keeps a 3% APR, which is only possible if you keep remortgaging with the same rate.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

Mortgage detailsMonthly PaymentFortnightly PaymentFortnightly + £50
Periodic payment (capital & interest)£948.42£474.21£524.21
Pay-off Time25 years22 years 4 months20 years 10 months
Saved Timenone2 years 8 months4 years 2 months
Total interest charges£84,526.79£74,563£64,101

According to our example, if you make fortnightly payments, you can pay your mortgage in 22 years and 4 months. It will also save you £9,963.79 in total interest expenses. Meanwhile, if you make fortnightly payments and add £50, you’ll pay your mortgage in 20 years and 10 months. This also saves you £20,425.79 in interest charges.

Be Mindful of Fortnightly Payments

Note that a fortnightly schedule must be paid every two weeks, not twice a month. Some months will have three payments, so track your schedule. Because of the tight timetable, this option is not for everyone. If you miss a payment or so, you’ll incur penalty fees, and it will impact your credit score negatively. It also defeats the purpose of making savings with overpayments. Only consider a fortnightly payment option if you’re committed to making timely payments. Otherwise, just stick to a monthly schedule, which also allows you to make overpayments.

What if I can’t take a fortnightly schedule? In certain cases, maybe you can’t make fortnightly payments. When this happens, you can still replicate its payment effect by adding a particular amount to your monthly payments. To do this, take your regular monthly payment and divide it by 12. The resulting amount is the overpayment you must make each month.

For example, your monthly mortgage payment is £948.42. If we divide this by 12, it will result to around £80. This is the overpayment amount you must make each month, which increases your payment to £1,028. At the same time, if you can raise your overpayment amount, you will further reduce your term and increase your interest savings.

Remortgaging Helps Boost Your Savings

Shaking hands with agent.

In recent years, it’s become increasingly common for homeowners to remortgage in order to obtain a more favourable deal. This keeps your loan from reverting to the standard variable rate (SVR) mortgage, which usually has an expensive rate. Besides overpayments, remortgaging allows you to reduce your rate as well as shorten your term. It gives you the chance to change to a new lender that offers a more favourable deal.

Depending on the type of mortgage you choose, you can significantly lower your rate. This results in affordable payments, which gives you more room to make overpayments. Furthermore, if you’ve made overpayments during the introductory period, you’ve likely lowered your LTV ratio. A lower LTV ratio makes you eligible to more favourable interest rates when you remortgage your loan.

But as a caveat, note that remortgaging to shorten your term can significantly increase your monthly payments. Plus, remortgaging before your introductory period ends requires early repayment charges. Thus, you must prepare your finances thoroughly before you decide to remortgage your home.

To show you how remortgaging works, here’s an example.

Suppose you bought a house worth £250,000 and paid a 10% deposit of £25,000. This reduces your mortgage balance to £225,000. You took a 5-year fixed-rate mortgage at 3% APR. Your monthly payment for 5 years was £1,066.98. If your rate stayed the same for the entire term, your total interest cost would amount to £95,092.64.

Once your 5-year fixed mortgage ended, you decided to remortgage into a new 5-year fixed-rate loan. You’ve reduced your mortgage balance to £192,387.33. This time, because you have an LTV ratio of 76%, you qualified for a lower interest rate at 1.80% APR. You also plan to remortgage your term to 15 years instead of the current 20-year term. As a result, your monthly payment increased to £1,220.39. But as a benefit, this can reduce your total interest charges to £27,283.05 if you maintain the same low rate throughout the loan.

Introductory Mortgage
5-year Fixed-rate
Home price: £250,000
Deposit (10%) £25,000
Mortgage balance: £225,000
LTV ratio: 90%
Rate: 3%
Term: 25 years

Remortgaged Loan
5-year Fixed-rate
Remaining mortgage balance: £192,387.33
LTV ratio: 76%
Remortgaged rate: 1.80%
Remortgaged term: 15 years

Mortgage DetailsIntroductory MortgageRemortgaged Loan
Monthly Payment (capital & interest)£1,066.98£1,220.39
Total interest costs£95,092.64£27,283.05

In this scenario, your monthly payment increased to £1,220.39 when you remortgaged your loan to 1.80% APR with a 15-year term. Even with a lower rate, note that your monthly payment can increase significantly when you shorten your term. In this example, your monthly payment increased by £153.41. However, compared to 3% APR, you’ll save £67,809.59 with 1.80% APR over the life of the loan. Thus, if you have the opportunity to take a lower, more favourable rate, consider remortgaging your loan.

Remortgaging is Not Cheap

Since remortgaging is essentially taking a new loan to repay your mortgage, it comes with hefty upfront costs. Expect to pay for arrangement fees (£500 – £2,000) and booking fees (£75 to £250). You must also spend for valuation fees (£350), conveyancing costs (£500 to £1,500), and broker fees (1% of the loan amount). If you remortgage before your current deal expires, expect to pay early repayment charges.

To justify remortgaging expenses, make sure to obtain a much lower rate. If you can, try to lower your rate at least 1 to 2 percent lower than your initial rate. This will help you breakeven sooner on your remortgaging costs. To avoid remortgaging too often, some homeowners also choose 10-year fixed-rate mortgages. This guarantees more stable payments for a longer period of time.

The Disadvantages of Early Mortgage Repayment

Man losing money.

Paying your mortgage early is generally a wise financial move. However, there are certain situations that might require you to use extra cash on more important expenses. Focusing on early mortgage repayments entails a large sum of money, which will draw funds from other areas of your budget. Apart from possible early repayment charges, consider your other financial obligations.

Before you commit to making overpayments, assess your financial situation. You might need to prioritise large debts such as high-interest credit card balances. It’s best to pay large debts before they increase even further. High-interest debts also drain away your savings the longer you take to pay them off.

Next, perhaps you have essential expenses that need more focus. If you’re expecting a new baby into the family, it’s wiser to prioritise medical bills and other related childcare costs. In other cases, perhaps you’re focused on remodelling and making necessary changes on your home. This will involve a large expense, so you must set aside mortgage overpayments for later. Other debts you probably don’t have to pay right away is your student loan.

Finally, focusing on mortgage overpayments leaves less room for emergency savings. Before making overpayments, be sure you have ample emergency funds. To gain a premium on liquidity, you sacrifice some interest payments to have easier access to cash whenever you need it. Start by saving 3 months’ worth of emergency funds. Then, work your way up to 6 months of emergency savings. This way, you’ll have a financial safety net. In case you face sudden job loss, an accident, or an illness, you’ll have money to cover it. Even an unexpected car repair can derail your finances. But with emergency savings, you’re sure to have money for a rainy day.

To summarize the pros and cons of early mortgage repayment, we made the table below:

ProsCons
Save money on interest total expenses  

Can significantly shorten your loan term

Pay your mortgage before retirement  

Lowers your LTV for more favourable remortgaging rates

Money saved can be put toward retirement & other investments
Restricts your purchasing power  

Less money going toward large, high-interest debts

Less money for other important expenses

Less money going toward emergency savings

Potential early repayment charges

A Final Word

Making mortgage overpayments is a viable financial strategy to shorten your term. It also reduces your mortgage’s overall interest costs, which helps boost your savings. The larger the overpayment you make, the shorter your loan term will be. Consider this option if you plan to pay your mortgage before retirement. Overpayments are commonly be paid as a lump sum amount, or as an additional amount on top of your regular monthly payments.

Mortgage overpayments lower your loan-to-value (LTV) ratio, which further reduces your mortgage balance. With a lower LTV ratio, you can qualify for more favourable rates when you remortgage your loan. And with a lower rate, you can save tens and thousands of pounds more on interest costs. Thus, consider making overpayments to secure lower rates when you remortgage your loan.

On the other hand, early mortgage repayment comes with drawbacks. If you make overpayments during the introductory period, be wary of early repayment charges. This extra cost can offset any savings you make from overpayments. Thus, it’s best to pay within the allowed amount, which is usually 10% of your mortgage balance. After the introductory period, you can budget higher overpayments to further reduce your term.

Though early mortgage repayment is a good idea, don’t forget more important financial obligations. It’s best to prioritise immediate family expenses before you commit to overpayments. And as a rule, clear off high-interest credit card debts first. This will free up your cash flow, allowing you to save more and take care of other important expenses. Lastly, it’s ideal to save emergency funds before prioritising your mortgage. Having extra money will help keep your finances on track in case of a sudden accident, job loss, or illness.

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