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I'm currently nearing the end of the first year of my new 25-year mortgage, which is a five-year fixed plan at 3.39%. As it stands, I can make overpayments of up to 10% of the original loan every year without incurring an early repayment charge. I have just done this, and consequently reduced my mortgage term by almost 4 years and saved about £14,000 in interest. (Hooray!)

The original plan was to overpay within the limits (i.e. without incurring ERC) and be done with the mortgage within about 8 years. However, having done some calculations and discussing it with my accountant, I could safely overpay even more each year (the early repayment charge is 4%, so at most another £200 on top of an additional £5,000 overpayment) and be done with my mortgage in as little as 3 years.

I'm fortunate to be in a position where I could do this and still have a decent rainy-day / all-my-work-disappears-and-I'm-unemployed-for-a-year fund, so I won't be digging a financial hole for myself. However, I'm wondering if there are any definite adverse consequences to doing this. For example, If I completely paid off my mortgage by 2018, and then in 2022 decided I wanted to buy a much bigger house, would I struggle to get a mortgage because I hadn't had any kind of credit for the intervening 4 years?

For reference: the mortgage is my only current debt; I have no credit cards or other loans. I'm little concerned that having zero visible debt would be seen as a bad thing.

Update 2018: I paid off my mortgage!

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    Why not get a credit card then? It would provide you with a better credit score, allow you to gain more interest by keeping your money in your bank for longer, provide better security/insurance than purchases made with debit cards, and you could get a cashback card so you're earning money on your purchases.As long as you pay it off in full each month (which you seem capable of doing) then it's no risk or hassle (you can set up a direct debit to do it automatically).
    – Moogle
    Aug 12, 2015 at 10:25
  • @Moogle Probably a psychological barrier, more than anything. I had credit cards when I was a lot younger and stupider and I got myself into a mess of trouble. Since then I vowed never to get myself into debt... which is pretty much the reason for the question! But I have considered this.
    – indextwo
    Aug 12, 2015 at 10:40
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    Understandable, but as long as you set up a direct debit to pay it off in full each month then the risk is low. And there are plenty of good cashback cards now (AMEX Platinum, Santander 1,2,3, Capital One Platinum to name a few). Obviously if you have strong reservations then that makes sense, but it seems to me that it would solve much of your issue, and provide many other benefits.
    – Moogle
    Aug 12, 2015 at 11:52
  • @indextwo I understand exactly where you're at regarding credit cards, since I too was deep in debt. They're too useful, though, so I track what I spend and pay the card off every Sunday night.
    – RonJohn
    Sep 3, 2019 at 13:46

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No, paying off your debt quickly isn't going to do any harm. Generally banks give a lot of impetus on your credit report. Get a free copy of your credit report and have a look through. Any direct debits(phone, bills etc), bank/credit accounts, election register and loads of other stuff are there, which help in building up a credit picture of yours for any lender. Not having a credit would have counted against you if you have been living outside UK for the past >5 years or so, never had a bank account/credit card. But having taken a mortgage and paid it off in full and having no debts/loans would count for you and the lender would be happy to lend to you.

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    I hadn't considered things like utility bills, which I suppose would all help maintain an appearance of 'good credit'. To be honest, my fears were a little more conspiratorial: We were hoping to rinse another £50k in interest from you, but you paid us off too early. You're not a good investment. ¯\_(ツ)_/¯
    – indextwo
    Aug 12, 2015 at 10:50
  • Two quick reassuring notes. First the banks often make a vast majority of their money off origination and generally sell of the loans. So they don't care much. Also, note that at the beginning of the loan most of your payment is interest and a tiny silver is premium payment, but as you own more of the house the amount of you payment that is in interest is much smaller. So even they people they sold the loan to have already made a vast majority of the money they will make.
    – rhaskett
    Aug 13, 2015 at 17:01
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I could only find a good Credit Score Calculator for the US but I'm guessing the considerations in the UK are similar. Note, that while this calculator is rather comprehensive repayment speed is not a concern and having current outstanding loans generally hurts when trying to get new loans. At the same time, having a long credit history helps quite a bit and this completely ignores breaks in your credit history.

While this calculator is not official and everyone does the calculations a little different it can give you a feeling for what banks really care about. Getting a credit card using it lightly and paying it off every month in the intervening years could help a little for instance, but probably not that much.

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  • Thanks for the link. I actually found this calculator a few days ago but dismissed it because it was American. Having gone through it, It puts me in the same range I'm already at, as far as I'm aware. I might try it as if I have no mortgage and see if I get something markedly different.
    – indextwo
    Aug 12, 2015 at 10:45
  • As a US citizen I saw no detrimental effects from paying down mortgages in far less than their 30 year terms. There was a slight detrimental effect on our credit ratings when the 7 years passed and the last mortgage aged off our credit reports. Despite this ding our ratings are high enough that it's irrelevant.
    – Loren Pechtel
    Aug 13, 2015 at 2:45

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