Early Mortgage Repayment Guide: Save Thousands
Why Repay Early?
Every extra pound you pay off your mortgage reduces the balance that accrues interest. On a £200,000 mortgage at 5% over 25 years, the total interest paid is roughly £150,000. Repaying just 5 years early saves approximately £35,000 in interest.
Early Repayment Charges
Most fixed-rate mortgages charge 1-5% of the amount overpaid if you exceed your annual overpayment allowance (typically 10% of the balance). ERCs usually only apply during the fixed period. Once on SVR or a tracker, there are usually no penalties.
Strategies
Regular overpayments: Set up a standing order for an extra £100-500/month. Lump sum payments: Use bonuses, inheritance, or savings. Reduce your term: When remortgaging, keep payments the same but shorten the term. Offset mortgage: Link your savings to your mortgage to reduce interest without committing funds.
When NOT to Repay Early
Don't overpay if: you'd breach ERC limits, you have higher-interest debts (credit cards, personal loans), you don't have an emergency fund, or you could earn more after tax by investing in an ISA.
The Maths
On a £200,000 mortgage at 5% over 25 years:
- Standard payments: £1,169/month, total cost £350,754
- With £200/month overpayment: Mortgage-free in 18 years, total cost £302,000
- Saving: £48,754 and 7 years
Related Calculators
Frequently Asked Questions
How much can I save by repaying my mortgage early?
On a £200,000 mortgage at 5%, overpaying £200/month saves around £48,754 in interest and pays off the mortgage 7 years early.
What is an early repayment charge?
An ERC is a penalty (1-5% of overpayment) charged if you exceed your annual overpayment allowance during a fixed-rate period. Most deals allow 10% overpayment per year without charge.