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Can you pay off a lump sum when remortgaging

Can you pay off a lump sum when remortgaging
Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 28, 2022

Absolutely. Any way you have to pay off or reduce your mortgage can have significant financial benefits over the term of the loan.

If you’ve come into some cash from say, an inheritance, property sale, share dividend, work bonus or even a tax refund, you can use it to make one large repayment on your mortgage, or use it to increase the amount you pay each month.

Depending on how much your cash windfall was, you have a number of options open to you, and with a little research, or some expert advice, you can choose the one that offers the most long and short term benefits.

Paying off a lump sum when you remortgage

If you have a mortgage of £100,000 and come into some money, say £40,000. Depending on your mortgage agreement, you could pay off £40,000, reducing your mortgage to £60,000, and then remortgage that amount with a new lender.

This would usually apply if you are outside of a fixed-rate period, and are now with your lender’s standard variable rate (SVR).

SVRs are usually more expensive, so it would be a good time to make a large one-off payment and then look to change to a mortgage provider who offers a better deal.

Lenders are all different and rules can vary between products, so you’ll need to check with your lender on their policy about early mortgage repayments, as well as the deal you agreed to.

Make extra repayments

You could also use the lump sum to make larger repayments each month, in fact many mortgage providers allow you to overpay by 10% a year, without incurring any penalties.

Can I use the lump sum to offset my mortgage?

Yes. Another option is that some banks and building societies offer offset mortgages.

Essentially you deposit the money into an account with them, and the balance of that savings account is used to reduce or ‘offset’ the amount of interest you’re charged.

The main advantage is that you can save significant amounts of money because you are paying a lower interest rate, and this could take months, if not years, off your mortgage repayment term.

The added bonus is that the cash amount will always be available to you, should you need it.

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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