Can I pay my mortgage earlier?

Partial prepayment as a strategy

Rather than waiting to fully settle the loan, many borrowers make lump-sum overpayments whenever they have spare cash — an annual bonus, for example. Because mortgage interest is calculated on the outstanding balance (a reducing-balance basis), every overpayment reduces the interest charged for the rest of the term, even if your monthly instalment stays the same.

• Most banks allow a set number of free partial prepayments per year (often 1-2), with a small fee beyond that
• You can generally choose to either reduce your monthly instalment or shorten your remaining term after a prepayment
• Shortening the term (keeping the instalment the same) usually saves more total interest than reducing the instalment

Illustrative example

On a AED 1.5 million loan at an indicative 3.89% over 25 years, a one-off AED 100,000 overpayment in year 3 could save tens of thousands of dirhams in total interest by shortening the effective term — the exact saving depends on your rate, timing and whether you shorten the term or reduce the instalment. Run your own numbers on the mortgage calculator.

Reduce term vs. reduce instalment

When overpaying isn't the best move

• If you don't yet have 3-6 months of expenses saved as an emergency fund
• If you have higher-interest debt (credit cards, personal loans) that should be cleared first
• If your bank's overpayment fee beyond the free allowance outweighs the interest saved on a small lump sum

Before you overpay

Confirm your bank's specific partial prepayment terms in writing — the number of free overpayments, any minimum amount, and whether you can choose term reduction vs. instalment reduction. If your goal is a lower rate rather than early payoff, compare that against refinancing to a different bank instead.