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Paying off your home loan early

Paying off your mortgage early could save you money in the long run.

But, there are a few things to consider before you do it, including early settlement charges, and whether it’s better to pay off other forms of debt first.

In this guide, we look at the pros and cons of paying off your mortgage early, and how you can do it.

Why would you repay your mortgage early?

Here’s a summary of the benefits of repaying your mortgage early.

Pay less interest

Your monthly mortgage repayments are made up of two different amounts: a portion of the money you’ve borrowed, and your interest charges.

The higher your outstanding mortgage, the higher your interest charges will be.

This means that the more debt you pay off, the less interest you’ll typically pay - assuming the interest rate doesn’t change.

So, making overpayments towards your mortgage reduces your debt quicker, and could save you money in the long term.

Explore: See our range of home loans

Clear debt quicker

You can also be debt free quicker if you repay your mortgage early.

By paying back more, the term of your mortgage could be reduced.

This means you’ll pay interest for less time, and you won’t have to worry about the monthly repayment commitments for as long.

Get a better LTV (loan to value)

Your LTV ratio is the amount you’re borrowing as a percentage of your property’s value.

If you make sizeable repayments towards your mortgage, it’ll reduce your LTV quicker, because the amount you owe will shrink in comparison to the value of your property (assuming your property’s value is unchanged).

Although this won’t affect your current mortgage interest rate, it could make a difference if you decide to remortgage.

For example, if you take out a new fixed-rate mortgage after your current term ends, you could be eligible for lower interest rates if you have a lower LTV than before.

Explore: Balance transfers with HSBC

What to look out for when making overpayments

While the benefits of repaying your mortgage early are fairly clear, it’s important to weigh up the potential disadvantages, too, which will depend on your individual situation.

Overpayment fees and early settlement charges

The main potential drawback to repaying your home lone early is the fees that could apply.

An early settlement charge is a fee for paying off your loan too soon.

These can be expensive - up to 1% or AED 10,000 (VAT exclusive), whichever is lower - so it’s important to check the terms and conditions of your mortgage with your lender first.

Some mortgages also charge overpayment fees for paying back more than your standard repayments.

Other mortgages allow you to overpay up to a percentage of your outstanding balance each year, but charge for anything more.

With an HSBC mortgage, you can overpay up to 25% of your outstanding balance per calendar year. Anything over this threshold usually incurs an overpayment fee.

You can check your mortgage's charges in the terms and conditions of your agreement. If you’re unsure, speak to your mortgage provider before you make a decision.

Pay off other debt first

If you have other outstanding debt alongside your mortgage, such as an overdraft, personal loan or a credit card, it might be best to clear these first.

Mortgage interest rates are typically lower than other types of loans, because the loan is secured against your property and the terms are much longer.

If you’re paying a higher interest rate on debt elsewhere, you may want to prioritise paying that off first – but make sure you still keep up with your minimum mortgage repayments.

Explore: How to manage debt

Saving for an emergency fund

It’s important to keep in mind that most mortgages won’t allow you to re-draw money from your loan once you’ve paid it back.

Once you’ve made overpayments, you’ve committed those funds to your mortgage.

Unexpected financial costs, such as home repairs or needing to replace your car, can spiral out of control if you’re forced to borrow money at high interest rates to meet important payments.

So, if you don’t have an emergency fund readily available, you should consider building one before making overpayments towards your mortgage.

A good rule of thumb is to have 3 to 6 months of living costs saved as an emergency fund.

Explore: How to save money

Other savings and investments

Perhaps becoming debt-free isn’t your most important financial goal. In that case, you might want to consider putting your extra cash in a savings or investment account instead of paying off your mortgage quicker.

You could potentially get better returns than what you’d save on paying interest, and you may still have easy access to your money if you needed it (depending on what you invest in).

Or, you could even start saving towards a deposit on a second property to serve as an investment and rental income source.

It’s important to weigh up the pros and cons of each option, but keep in mind that investments can both fall and rise in value, so you could lose money.

Explore: Our beginner’s guide to investing

How do you make overpayments to your mortgage?

You’ll usually need to notify your bank or lender before you make overpayments, so they know what to expect.

You can either make a lump sum payment, or increase your Direct Debit so you’re paying slightly more each month.  

Increasing your monthly Direct Debit allows you to steadily pay off your mortgage early without having to fork out a large chunk of cash in one go.

If you have an HSBC mortgage:

  • your overpayment must be on your normal monthly repayment date
  • your loan duration will stay the same, but your monthly repayments will reduce after overpaying
  • you can make an overpayment by signing a debit authority for us to arrange the payment

Explore more

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Find out how switching your mortgage could save you money and lower your monthly repayments.
Everything you need to know about the different types of home loans.


This article provides general information about mortgages. HSBC UAE may not offer all the products or options mentioned. This article should not be relied upon as financial advice.