Overpaying a mortgage is one of the most common ways of paying back your mortgage early.
How to overpay your mortgage
First, you need to check with your lender that they allow overpayments. Some may charge a fee to pay more than your agreed monthly amount. These charges could cost more than any savings made through overpaying your mortgage, so it’s important to check.
If you want to overpay and your provider allows it, you can overpay via:
- Standing order
- Bank transfer
- Direct debit
- Payment in a branch or by phoning your mortgage provider
If you’re interested in overpaying on your mortgage, try our mortgage overpayment calculator. Here you can get an estimate of howmuch overpayments might save you.
How fast can you pay your mortgage off?
The speed you can pay off your mortgage will depend on a few factors:
- Your mortgage amount
- Mortgage term
- Interest rate
- Limits on overpayment
Usually, with a standard variable rate (SVR), you can overpay by as much as you want to pay off your mortgage faster.
Many mortgages change to SVR after your mortgage term ends. Check with your providers about which rate you are on and if there’s any limits on overpayment.
Early repayment charge
If you overpay more than the limit set by your lender or pay off your mortgage early, you may have to pay an early repayment charge (ERC). This amount will vary depending on the lender.
It’s usually equal to several months of the mortgage’s interest, a percentage of the original mortgage value or balance still owed. Check with your provider before you make any mortgage overpayments.
If you’re a Lloyds Bank customer, have a look at our terms around mortgage overpayments.
FAQs
Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.
How do I pay off a 30 year mortgage in 10 years? ›
How to Pay Off a 30-Year Mortgage Faster
- Pay extra each month.
- Bi-weekly payments instead of monthly payments.
- Making one additional monthly payment each year.
- Refinance with a shorter-term mortgage.
- Recast your mortgage.
- Loan modification.
- Pay off other debts.
- Downsize.
Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.
What is the easiest way to pay off a mortgage early? ›
How to pay off your mortgage faster
- Refinance to a shorter term (15 years) 15 years. ...
- Apply cash windfalls ($3,000 annually) to your principal balance. 23 years, 2 months. ...
- Make biweekly payments. 23 years, 8 months. ...
- Pay ($200) more than your monthly payment. 24 years, 3 months. ...
- Recast your mortgage (one-time $50,000 payment)
If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000. Another way to pay down your mortgage in less time is to make half-monthly payments every 2 weeks, instead of 1 full monthly payment.
What happens if I pay 3 extra mortgage payments a year? ›
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
How to pay off $30,000 mortgage in 5 years? ›
There are some easy steps to follow to make your mortgage disappear in five years or so.
- Setting a Target Date. ...
- Making a Higher Down Payment. ...
- Choosing a Shorter Home Loan Term. ...
- Making Larger or More Frequent Payments. ...
- Spending Less on Other Things. ...
- Increasing Income.
If you pay off your mortgage early, you'll no longer have any mortgage interest to deduct on your tax return if you itemize your deductions. This change is most likely to affect you if you have a large mortgage, a high interest rate—or both—-and your annual interest payments are substantial.
How many years does a 2 extra mortgage payment take off? ›
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
Do extra payments automatically go to principal? ›
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
Should I pay off my mortgage early? There are both pros and cons to paying your mortgage off early. While you save on interest and have extra funds to use elsewhere, you will lose the federal mortgage interest tax deduction and could miss out on more lucrative investments.
At what age should you pay off your mortgage? ›
To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.
What is the cheapest way to pay off a mortgage? ›
Ways to pay off your mortgage early
- Increasing monthly payments – If your salary increases, you may want to pay more towards your mortgage. ...
- Lump sum – An overpayment can also be a one-off lump sum. ...
- Shorten your mortgage term – Generally, the shorter your mortgage term, the less interest you pay in total.
Doing so can shave four to eight years off the life of your loan, as well as tens of thousands of dollars in interest. However, you don't have to pay that much to make an impact. Even paying $20 or $50 extra each month can help you to pay down your mortgage faster.
How do I pay off a 30 year mortgage in 15 years? ›
Pay extra toward your mortgage principal each month: After you've made your regularly scheduled mortgage payment, any extra cash goes directly toward paying down your mortgage principal. If you make an extra payment of $700 a month, you'll pay off your mortgage in about 15 years and save about $128,000 in interest.
What happens if I pay an extra $3000 a month on my mortgage? ›
Payments made on a mortgage in addition to your regular monthly payment will count toward the loan principal. Extra payments can be beneficial because they apply directly to your loan principal, helping you pay off your loan faster and with fewer interest fees.
Is paying off a 30-year mortgage in 15 years worth it? ›
The Bottom Line
If your aim is to pay off the mortgage sooner and you can afford higher monthly payments, a 15-year loan might be a better choice. The lower monthly payment of a 30-year loan, on the other hand, may allow you to buy more house or free up funds for other financial goals.
Are there disadvantages to paying off a mortgage early? ›
If you pay off your mortgage early, you'll no longer have any mortgage interest to deduct on your tax return if you itemize your deductions. This change is most likely to affect you if you have a large mortgage, a high interest rate—or both—-and your annual interest payments are substantial.
Is it worth paying off a mortgage early? ›
If you can afford to make extra payments, overpaying your mortgage means you pay less interest in the future and pay off your mortgage sooner. This means you could save a lot of money.
How much does one extra payment a year reduce a 30-year mortgage? ›
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years. You could potentially pay off the mortgage and own the home outright in 25 to 26 years instead of 30.
