This can reduce how much interest you pay, save you money, and take you closer to being mortgage-free.
So how do you achieve it? Here, we look at:
Ways to pay off your mortgage early
How much extra can you pay towards your mortgage?
Benefits of paying more towards your mortgage
Any extra money you pay into your mortgage over your standard monthly payment is called an overpayment. There are a few ways you can do this:
A regular overpayment is when you pay more than your standard monthly payment each month. You can do this in two ways:
If your monthly payment is £1,000 and you choose to pay £1,200 (by either increasing your Direct Debit or setting up a Standing Order), this is a monthly overpayment of £200.
As this is not part of your standard (or contractual) mortgage payment, you can cancel or amend this amount when it suits you. Your lender should be able to explain what methods they allow for regular overpayments.
If you’re looking to pay more off your mortgage but prefer to do it now and again (rather than every month), you can consider making lump sum payments.
The amount of extra money you can pay off your mortgage without a fee can vary and will depend on the type of product you are currently on. It’s important to check with your lender how much extra you can pay off your mortgage to avoid any potential early repayment charge (ERC).
Most lenders allow you to pay up to 10% of your loan balance each year without incurring an ERC. This is called an annual overpayment allowance (AOA). If you go over your AOA, there could be an ERC so it’s worth checking with your lender what your AOA is to avoid this.
Most lenders allow you to make unlimited overpayments without incurring an ERC.
The above isn’t the case for every lender, so you should always check how much extra you can pay before deciding on any overpayments.
If you have a repayment mortgage, your standard monthly payment is used to pay the interest that has accrued on the capital balance of your loan since your last monthly payment, and some of it is used to reduce the balance.
When you make an overpayment to your mortgage, all of that payment goes directly towards reducing your mortgage balance (assuming that your account is up to date and that there are no arrears). This has these key effects:
Try our overpayments calculator.
Making overpayments to help pay off your mortgage early is a good option for some, but there are things to consider:
If your mortgage has an annual overpayment allowance, paying extra towards your mortgage could save you money. But you will need to stay within this limit to avoid an ERC.
Credit cards, loans, and overdrafts tend to have higher interest rates than mortgages. You may consider paying these expensive debts off first before you overpay on your mortgage.
If you don’t already, it’s a good idea to build up savings before paying extra off your mortgage. Ideally, save 3 to 6 months’ worth of living costs as an emergency fund. This way, if you’re faced with an unexpected bill, you’re more likely to have available money rather than needing to borrow.
If you have a mortgage that allows you to make overpayments, you can contact your lender to change your payment amount.
Most lenders allow you to set up a Direct Debit or transfer a lump sum to your mortgage account online or over the phone.
If you’re an HSBC customer, you can make overpayments online or by phone.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
