You are here

Should I pay off my mortgage?


If you are in a position where overpaying on your mortgage, or even paying it off in full is an option, before you go straight ahead and make the payments, take time to consider whether this is the best way to maximise your money and get your hard-earned cash working for you.

Ways to pay off your mortgage early

There are some mortgages, such as offset, which are designed to allow borrowers to overpay as and when then choose, with no penalties to be paid. With these types of mortgages, overpaying is often an obvious choice.

If, however, you have a repayment or interest-only mortgage, you can pay off/overpay your mortgage in a couple of ways:

  • in full by lump sum
  • partially with a lump sum
  • by overpaying each month.

Reasons to pay off your mortgage early

Benefits to paying off your mortgage early could include:

  • you’ll be debt free sooner
  • you’ll reduce the amount you’ll repay in interest
  • the savings you make could outperform what your money would make in a savings account
  • you’ll enjoy the sense of security that comes from owning your home outright.

Reasons to NOT pay off your mortgage

Paying off the mortgage early is the dream for many of us, who relish the idea of freedom from this monthly payment, however, there are instances where your money could actually be working harder for you elsewhere. Reasons to think twice before paying off/overpaying on your mortgage include:

  • you might be faced with early repayment charges
  • your money might work harder for you invested elsewhere, rather than tied up in your home
  • if you think you may want to move in the future, already having a mortgage, even a small one, could be beneficial when it comes to getting lenders to lend you funds
  • if you have other debts, it may be better to prioritise repaying these first, particularly if you are facing steep interest charges
  • if your savings are working hard for you in a high-interest savings account, then keeping them put may be financially better
  • it could be beneficial to use your spare cash to create an easily-accessible nest egg for life’s ups and downs.

How to work out how much you could save by paying off your mortgage early

This can be a little complicated and it is best to gather all your information together and set aside some time to work through the sums.

Begin by contacting your mortgage lender to ask what the monthly interest is on your mortgage. Note that this is different from what you pay each month, as that figure includes interest and capital repayments, (unless your mortgage is interest only).

The next stage is to look at how much interest your savings are earning, and how much tax you pay on them, (don’t forget your tax-free savings amount).

Finally, compare the two figures, is your mortgage interest greater than the interest (after tax) on your savings? If yes, then the savings in mortgage interest payments will outstrip the interest you earn, making it a good decision to pay off your mortgage early.