Wouldn’t it be nice to live without that monthly mortgage payment draining your bank account? Sir Keir Starmer, the Prime Minister, is now enjoying exactly that luxury after paying off the mortgage on his £2 million North London townhouse. But should you pay off your mortgage early?

Sir Kier managed this feat five years earlier than most people do, joining the lucky one-third of the population who don’t have to worry about rent or mortgage payments.

Now, you might be thinking, “Great for him, but what about the rest of us?” The average first-time buyer in the UK is now 31, and with typical mortgage terms stretching to 32 years, many of us will still be paying off home loans well into our 60s. But there’s good news: with some strategic planning, you could clear your mortgage much sooner, too.

Why Pay Off Your Mortgage Early?

First off, let’s talk about why you’d even want to do this. Paying off your mortgage early can save you thousands in interest. Imagine the relief of owning your home outright and having more financial freedom! It’s a goal that appeals to many, but before you rush to overpay, you need to consider if it’s the best move for you.

Overpaying means chipping in more than the minimum monthly payment required by your lender. By doing so, you reduce your loan faster, meaning you’ll owe less interest overall. Let’s take a look at the maths.

The Maths of Overpaying

Say you have a mortgage of £185,000 on a 25-year term at the current average rate of 4.93%. Adding just £100 to your monthly payment would shave nearly four years off your term and save you almost £23,700 in interest. That’s no small change!

With rates going up, overpaying has become more popular than ever. In fact, the Bank of England revealed that in the first quarter of last year, homeowners made a record £6.7 billion in mortgage overpayments. Even small overpayments, made regularly, can significantly reduce the term of your loan.

But here’s the catch: while overpaying may seem like a straightforward decision, it’s not without its complications.

Beware the Small Print and Pitfalls

Paying off your mortgage early isn’t always as simple as sending your lender an extra cheque. Lenders don’t like losing out on the interest they’d otherwise make, so many place restrictions on how much you can overpay without incurring penalties. These are known as Early Repayment Charges (ERCs), and they can sometimes be as high as 5% of the entire loan amount.

Most lenders allow up to 10% of the outstanding balance to be overpaid each year without triggering an ERC. Anything over that, and you could be looking at some hefty fees. This means you need to be strategic – know the terms of your deal before you start making additional payments.

And that’s not the only potential downside. Making large overpayments can leave you with less cash on hand for emergencies or other investments. Once you put that money into your mortgage, it’s difficult to get it back out.

This is a particular problem for those approaching retirement. If you’ve put all your extra cash into your mortgage and then need money later on, you might be forced to consider equity release, which can be costly.

Consider the Bigger Picture

Some people like the idea of being mortgage-free because it feels like freedom. But if you haven’t got enough savings or other investments to rely on, you could end up ‘asset rich, cash poor.’ You might own your home outright, but without a steady source of income, you might find yourself dipping into savings or, worse, taking out loans to get by.

It’s about balance: having a property with no debt is great, but it’s not ideal if it leaves you financially inflexible.

Think About Your Future Options

Another angle to consider is your future options for refinancing. If you’ve overpaid and own more of your property, you may qualify for lower interest rates when you come to remortgage. Mortgage companies often offer better deals to those with higher equity. So, if you’re nearing the end of a fixed-rate term, overpaying might land you a more attractive rate.

Final Thoughts: Is It Worth It?

There’s no one-size-fits-all answer. It really depends on your personal circumstances, risk tolerance, and financial goals.

For some, paying off the mortgage early brings peace of mind and a sense of accomplishment. For others, it’s about making smart financial decisions that maximise their long-term wealth.

If you’re thinking of overpaying, talk to a financial advisor who can look at your whole financial picture and help you decide what’s best. And if you do manage to pay off your mortgage early, make sure to set up a Property Alert with the Land Registry. It’s free and will protect you from fraudsters who might try to meddle with the ownership of your home.

Paying off your mortgage early is a big decision, but one thing’s for sure.  Speak to Sue at Questa to discover if it is the right option for you.