Overpaying Your Mortgage or Paying Off Other Debt?
This guide is for general information only and does not provide financial advice. Check your lender’s terms before overpaying, as early repayment charges may apply. Your home may be repossessed if you do not keep up repayments on your mortgage.
When you have spare cash and other debts, one way to look at it is the interest rate on each: whichever debt charges the higher rate costs more interest to carry. Rates vary widely, and other terms matter too.
A worked example
Take £5,000 of spare cash. This illustration compares a year of interest on the same £5,000 at three example debt rates, assuming nothing is repaid during the year, with the estimated interest saved in the first year by using the £5,000 against a £200,000 mortgage at 4.5% with 25 years remaining. The debt rates are examples only, not typical rates.
| Where the £5,000 goes | Estimated interest avoided in the first year |
|---|---|
| Debt at an example 3% | about £150 |
| Debt at an example 5% | about £250 |
| Debt at an example 10% | about £500 |
| Debt at an example 20% | about £1,000 |
| The mortgage at 4.5% | about £210 |
The figures use simple interest on the amount and ignore minimum payments, fees and how each lender calculates interest. Your own debts will differ, so use the rates and terms on your own statements.
Questions worth asking
- What rate does each debt charge, and does any rate change after an introductory period?
- Are there early repayment charges or fees on any debt, or on the mortgage if the payment goes over your allowance?
- Would repaying one debt leave you short of cash for emergencies?
If you are struggling with debts, free and impartial help is available, for example from MoneyHelper (moneyhelper.org.uk).
Figures are estimates from this site’s calculator, using the assumptions stated above each table. They are illustrations, not forecasts. Try your own figures in the free mortgage overpayment calculator.
If you are unsure whether overpaying suits you, consider speaking to a regulated mortgage adviser. This page is general information, not advice on your circumstances.
Questions people ask
Should I pay off debt before overpaying my mortgage?
It depends on the rates and terms of each. A debt that charges a higher rate costs more to carry, but your own situation and any charges matter. You may want to speak to a regulated mortgage adviser or a free debt adviser.
What is a typical rate on other debt?
It varies widely between products and lenders, and the rates in the table are examples, not typical rates. Check the rate on your own statements.
Does paying off a debt change my mortgage?
Not directly, but it can change how much spare cash you have to overpay with, and lenders may look at your debts if you apply for a new mortgage.
Other ways to look at it
overpaying or an offset mortgage, overpaying or keeping an emergency fund, overpaying before or after your fixed rate ends, what if your rate falls and you keep paying the same, overpaying with a variable income. For a first look at whether to overpay at all, see should I overpay my mortgage?