Overpaying an interest-only mortgage is often considered more impactful because it directly reduces the principal balance, lowering total interest and future monthly payments, which addresses the risk of having a large debt at term-end. Overpaying a repayment mortgage also reduces interest and shortens the term, but it is not necessarily "better" or "worse" than interest-only; the best choice depends on your goal to either reduce future debt (interest-only) or pay off the home faster (repayment).
Overpayments on interest only parts of your mortgage won't automatically reduce your monthly mortgage payment, unless you ask us to, but could save you money by reducing the amount of interest charged.
If you're not reliant on the income then paying as much towards the mortgage is always the better option. If you're looking to build a portfolio then interest only is probably the quickest way to do that.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Making an extra mortgage payment each year could reduce the term of your loan significantly. The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you'll have paid the equivalent of an extra payment by the end of the year.
The average age to pay off a mortgage in the U.S. is around 62, with many becoming mortgage-free in their early 60s, coinciding with or just after typical retirement age, though figures vary by source. While some financial experts suggest paying it off by 45 for aggressive investing, data shows a significant portion of homeowners, especially older ones (60+), are mortgage-free, but increasingly, older adults (60s, 70s, 80s) carry more mortgage debt than previous generations, according to Marketplace.
If you do not feel downsizing is practical for health or other reasons, Martin Lewis thinks a lifetime mortgage is an option to consider, if you seek expert advice on all your options, including any other alternatives, such as entitlement to means tested benefits and taking a lodger to provide extra income, for example ...
What are the disadvantages of interest-only mortgages?
The main cons of paying off a mortgage early include losing the mortgage interest tax deduction, facing opportunity costs (missing higher investment returns), and reducing your financial liquidity (tying up cash in your home instead of having it accessible). You might also incur prepayment penalties (though rare on conventional loans), and it can slightly lower your credit score by removing a large, established debt, according to U.S. Bank.
Speaking to 5 Live's Nihal Arthanayake, Martin Lewis said: “If your mortgage rate is higher than you can earn in savings, than overpaying mathematically adds up.” “The big advantage of overpaying your mortgage too is that it reduces the term, and you pay interest for a shorter amount of time.”
If you have a lower interest rate on your mortgage than on your savings account (for example, your mortgage is 3% and your savings is 6%), it makes financial sense to save with the higher interest rate savings account rather than overpay your mortgage.
“Paying off your mortgage early seems impossible but it is completely doable and people do it all the time, but how can you do it and why would you want to put in the extra effort? Paying off your mortgage early will rev up your wealth building.”
In fact, according to Public Policy Institute of California, 58 percent of California's equity millionaires, as of 2020, had successfully paid off their mortgages.
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
A household should allocate no more than 28% of their gross income to housing expenses. Total debt payments, including housing, should not exceed 36% of gross income under the 28/36 rule. Lenders often use the 28/36 rule to evaluate creditworthiness and loan approval.
Not Putting Extra Payments Toward the Loan Principal
Otherwise, you may not see much progress in your early mortgage payoff efforts because your extra payments will be absorbed by interest.