Can You Pay Off a Lump Sum When Remortgaging?

Yes, you can pay off or reduce your mortgage with a lump sum, and doing so can bring significant financial benefits over the life of your loan.

Whether you’ve received a cash windfall from an inheritance, property sale, work bonus, tax refund, or other source, you have the opportunity to make a large one-off repayment or increase your monthly mortgage payments to save on interest and shorten your mortgage term.

The best approach depends on the size of your lump sum and your financial goals. Options include overpaying your current mortgage, using the funds in an offset mortgage, or paying off a lump sum while remortgaging. To determine the right solution for your circumstances, it’s a good idea to seek advice from one of the expert advisors we work with, who can help you evaluate the potential benefits and guide you through the process.

Paying off a lump sum when you remortgage

For example, if you have a mortgage of £100,000 and come into £40,000, you may be able to use that amount to reduce your mortgage balance to £60,000 and then remortgage the remaining amount with a new lender.

This approach is particularly beneficial if you’re no longer in a fixed-rate period and are currently on your lender’s Standard Variable Rate (SVR). Since SVRs are typically more expensive, this could be an ideal time to make a lump-sum payment and switch to a lender offering a better deal.

However, policies on early repayments vary between lenders, so it’s essential to check the terms of your mortgage and any potential early repayment charges (ERCs) before proceeding.

Make extra repayments

Another option is to use your lump sum to make larger monthly repayments. Many mortgage providers allow you to overpay up to 10% of your remaining balance per year without penalties. Overpaying can help reduce the total interest you pay and shorten the overall term of your mortgage.

Can I use the lump sum to offset my mortgage?

Yes, you can. Some lenders offer offset mortgages, which allow you to link a savings account to your mortgage. The balance in this savings account is used to reduce the amount of your mortgage on which interest is charged.

The main advantage of an offset mortgage is that it can significantly reduce the interest you pay, potentially cutting months or even years off your mortgage term. Plus, your savings remain accessible, so you can still withdraw the money if you need it in the future.