Why paying off early pays off
Mortgage interest is one of the biggest costs most people face, so clearing it early can save tens of thousands. The best method depends on your deal, savings and flexibility — and on avoiding early repayment charges. Here are the most effective approaches.
1. Regular overpayments
Most lenders let you overpay (often up to 10% a year) without penalty, and overpayments come straight off the capital. Best for steadily cutting your balance and term — even small regular overpayments make a big difference over time.
2. Lump-sum overpayments
Putting bonuses, inheritances or savings toward the mortgage reduces the balance and interest. Best for those with spare lump sums — check your annual overpayment limit to avoid charges.
3. Shortening your term at remortgage
When you remortgage, reducing the term raises monthly payments but clears the mortgage years sooner with far less interest. Best for those who can afford higher payments and want a firm payoff date.
4. Offset mortgages
Your savings reduce the interest charged, and keeping payments the same clears the mortgage faster. Best for savers — see our offset mortgages guide.
5. Switching to a better rate
Remortgaging to a lower rate and keeping payments the same means more goes to capital. Best at the end of your deal — combine a better rate with maintained payments.
Watch out for
- Early repayment charges — check your annual overpayment limit
- Whether overpaying or investing/saving is better for your situation
- Keeping an emergency fund rather than overpaying everything
- Clearing costlier debts before the mortgage
How to plan paying off your mortgage
A whole-of-market broker can help you remortgage to a shorter term or a better rate to accelerate payoff. Find a mortgage broker through Nesto — free, no obligation.
Frequently asked questions
What's the best way to pay off my mortgage early?
Regular and lump-sum overpayments are the simplest; shortening the term at remortgage and offset mortgages also work well. Avoid early repayment charges.
Can I overpay without penalty?
Most lenders allow overpayments up to a limit (often 10% a year) penalty-free. Above that, early repayment charges may apply.
Is it better to overpay or invest?
It depends on your mortgage rate versus expected investment returns and your risk appetite. Clearing costly debt and keeping an emergency fund come first.
Does shortening the term save money?
Yes — a shorter term means much less interest overall, though monthly payments rise. It gives a firm payoff date.
Should I clear my mortgage or keep savings?
Keep an emergency fund and clear costlier debts first. Beyond that, overpaying saves guaranteed interest — balance it with flexibility.