Extra mortgage repayment: should you do it?
Extra mortgage repayment feels safe. Whether it makes financial sense depends on your interest rate, tax benefit, possible penalties and your personal situation.
The rule of thumb
The higher your mortgage interest rate, the more extra repayment pays off. Above roughly 5% repayment is often more attractive than saving or investing, because you earn a guaranteed return. Below 3% it becomes a personal trade-off between peace of mind and return for many households.
This is a rule of thumb, not personal financial advice. Your mortgage type, tax situation and conditions determine the final decision.
When is extra repayment attractive?
- Your mortgage rate is higher than what you can safely earn by saving or investing.
- You have enough buffer for unexpected expenses.
- You are allowed to repay extra penalty-free (or at low cost).
- You value a lower monthly payment or a shorter term.
When is it less useful?
- You could earn a higher return or tax benefit elsewhere.
- You do not yet have a buffer for unexpected costs.
- You receive a lot of mortgage interest tax relief and repayment pushes you into a lower tax bracket.
- Your bank charges a high penalty for early repayment.
Mortgage interest tax relief and tax
In box 1 you can often deduct the interest paid on an annuity or linear mortgage. Repayment reduces your interest and therefore your deduction. That makes extra repayment slightly less advantageous net for some households than the gross interest rate suggests.
Always check your own situation. The tax authority and your mortgage provider can tell you exactly how much relief you currently receive.
Penalty risk when repaying extra
Most mortgages offer an annual penalty-free repayment allowance, often 10% of the original principal. Want to repay more? Ask about the penalty first. Sometimes it is smarter to wait for a penalty-free moment or to refinance.
A worked example
Suppose you have € 200,000 mortgage debt at 5% annual interest and you may repay € 10,000 extra penalty-free. You keep paying the same monthly amount, but the term becomes shorter. The total interest saving over the remaining term can quickly run into thousands of euros, depending on the remaining term.
| Scenario | Remaining term | Total remaining interest (indication) |
|---|---|---|
| Without extra repayment | 20 years | € 58,400 |
| With € 10,000 extra | ~ 18 years | € 49,500 |
These amounts are an illustration based on a linear mortgage without tax effects. Your own mortgage may differ.
Alternatives
Is your mortgage rate low and do you have a buffer? Saving, investing or topping up your pension may be more attractive. Either way: first build your buffers, then consider extra repayment or investing.
Read more about the comparison between repayment and investing on why repaying debt often beats investing.
Frequently asked questions
Can I always repay extra on my mortgage?
No. Some mortgages have a penalty or a maximum annual percentage. Check your mortgage terms or ask your lender.
Will my monthly payment go down if I repay extra?
Not automatically. With most mortgages the term becomes shorter. If you want a lower monthly payment, ask explicitly about the options.
Does my mortgage count as debt in the payoff plan?
Yes, the monthly payment is a fixed cost. When paying off other debts, the mortgage payment keeps running in your budget so your free cash figure is correct. If you also want to repay your mortgage faster, calculate separately with your bank’s conditions.
Read more about the effect of extra repayment in extra repayments: how much interest and time do you save?.