Is Paying off your Mortgage Early the Best Idea?


Paying off your mortgage early can make sense for lots of people. After all, it’s almost certainly the biggest debt that anyone has and the sooner the mortgage ends, the sooner you can free up more disposable income.

Clear other debts first

But before you start looking into how much you can afford to pay off, you need to do a review of your finances. If you have other debts, for example a loan or credit cards or store cards, it will almost certainly make more sense to pay these off first.

Mortgage rates are historically low at the moment and will always be lower than credit, debit or store card rates, which can come in at well over 20%. Even if you have relatively small amounts of debit on cards such as these, it’s always best to clear them first as the amount you owe can quickly accumulate.

Review your mortgage

Once you have sorted out other debts, you can look at your mortgage. One of the first things you should do is review your mortgage product. Explore if you can move to a deal with lower rates, but remember to check if you have an early redemption fee on your current mortgage and any fees you might incur on a new one.

You will also need to check with your lender that they will allow you to make overpayments and also any possible restrictions on the total amount you can pay off early without incurring penalties. Remember to factor this into any decision you might be taking about switching provider.

How much can you overpay?

You now need to decide how much to overpay and how. Look at your household expenses and work out realistically how much you could afford in extra mortgage payments. Ask your lender to make a calculation for you so you know how much of the term of your mortgage you will potentially shave off.

That can act as a great incentive too, when you realise how much more quickly you could be mortgage free.

If you have a fully flexible, it may be possible to get back the money you have put into the mortgage in overpayments, but check with your lender. If you can get the money back, it removes the risk of tying up the money in the mortgage and could help you decide to overpay more.

Check with your lender when your interest is calculated. If it’s daily, any overpayment will make an immediate impact and start working for you. However, if it’s annual, it will be better to save the money in an easy access account, earn some interest on it and then put the money into your mortgage in the days running up to when the interest is worked out.

Other benefits

In addition to shortening the mortgage term you can also increase the equity in your home. This can be helpful, even vital, if you have little equity or are in negative equity. It will make it easier to move to a more competitive mortgage deal as these are often reserved for customers with more equity in their homes. It can also help you to get a better rate if you are planning to move house.