Q: “We’d ideally like to pay our mortgage off as soon as possible. What’s the best way to go about it?”

07 Nov Q: “We’d ideally like to pay our mortgage off as soon as possible. What’s the best way to go about it?”

A: Well, that depends on your circumstances. 

If you have a lump sum – of savings, or from an inheritance or work bonus, etc – the first thing to check is whether your mortgage is subject to any annual limits; this is the amount you can overpay each year without incurring a fee, which is typically 10% of your original mortgage value, but it varies from lender to lender. If the lump sum is above the annual limit, you could keep some back for the next year. Obviously, paying a lump sum off your mortgage has an immediate effect on the balance and therefore the amount of interest you pay as well as the term of your mortgage.

Making monthly overpayments is another option. The annual limit will still apply, so be mindful of that. This would have a rippling effect on your mortgage, reducing your balance quicker and therefore reducing the amount of interest you pay over the term. If you plan to do this on a regular basis, it’s a good idea to let your lender know.

You could remortgage with a shorter term, which would lower the amount of interest you’d pay over the term but would commit you to an increase in your monthly payments. Before doing this, you must be confident you can afford a higher payment every month.

Some lenders offer an ‘offset mortgage’, which links your bank savings account to your mortgage – they offset one against the other and only charge interest on the difference. Check arrangement fees and interest rates though.

Before you do anything, check that paying your mortgage is right for you. Yes, there are many benefits, including lower interest rates for lower loan-to-value ratios and being mortgage-free sooner than you otherwise would have been. However, if you have any loans or debt at a higher interest rate than your mortgage, it makes sense to prioritise those. If you don’t have a pension, that might also be something to consider. If you have a lump sum, look at savings interest rates and if they’re higher than your mortgage rate then it could be more profitable short term to lock the money into savings, but bear in mind that interest on savings is taxable.

It goes without saying that, if your current mortgage deal is about to expire, make sure you switch to another deal to avoid being automatically transferred onto your lender’s Standard Variable Rate, and always pay any remortgage fee upfront as you’ll pay interest on it if you add it to your mortgage.

So, it’s not an easy question to answer as there are so many variables. My advice is, look at all angles before committing to anything, speak to your lender, and good luck in your quest!