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Paying your mortgage off early

Paying off a mortgage feels good. If you can afford to, there are ways you can repay the debt more quickly, even years earlier.

This can reduce the amount of interest you pay, save you money and take you closer to being mortgage free.

So how do you achieve it? Here are some ways to pay off your mortgage early, the benefits of doing so, and things to consider. 

Ways to pay off your mortgage early

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:

1. Make a regular overpayment

A regular overpayment is when you pay more than your standard monthly payment each month. You can do this in two ways:

  • contact your lender and ask them to increase your Direct Debit amount each month
  • set up a standing order to make additional payments each month

If your monthly payment is £1,000 and you choose to pay £1,200 instead, 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. You should check with your lender what methods they allow for regular overpayments if you’re not sure.

2. Make a lump sum payment

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.

How much extra can you pay towards your mortgage?

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 so you can avoid any potential early repayment charge (ERC).

If you're on a fixed rate of interest

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.

If you're on a variable rate of interest, such as a tracker rate

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’re able to pay before deciding on any overpayments.

If you’re an HSBC customer, you can log on to online banking to view details of your annual overpayment allowance or call our mortgage specialists on 0800 169 6333.

Benefits of paying more towards your mortgage

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:

  1. As your mortgage balance is lower, you’ll pay less interest on your balance. For most lenders this applies from the date you make any overpayment so the benefit is immediate.
  2. As the balance reduces more quickly, your original mortgage term may shorten, enabling you to finish paying off your mortgage earlier.
  3. As your mortgage term shortens, it means that you won’t be paying interest for as long, potentially saving thousands of pounds.
  4. When your mortgage balance reduces, it will give you a lower loan to valuation (LTV) ratio. If you were to then switch mortgage rate or remortgage to a new lender, having a lower LTV could make you eligible for lower rates.

Should you overpay on your mortgage?

Making overpayments to help pay off your mortgage early is a great option for some, but there are things to consider:

Does your mortgage allow you to make overpayments?

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.

Do you have expensive debts to pay?

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.

Do you have an emergency fund?

If you don’t already, it’s a good idea to build up savings before paying extra off your mortgage. You should ideally have 3 to 6 months’ worth of living costs as your emergency fund. This way, if you’re hit with an unexpected bill, you’re more likely to have available money rather than needing to borrow.

How to make overpayments and additional payments

If you have a mortgage which 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 log on to online banking or call our mortgage specialists on 0800 169 6333.

Think carefully before securing other debts against your home.

Your home may be repossessed if you do not keep up repayments on your mortgage.