Lump Sum Reduction

What is a Lump Sum Reduction?

A Lump Sum Reduction is the term used if you wish to pay off a large part of your mortgage early. Be careful, always ask whether there is an Early Repayment Penalty before you do this. Any redemption penalties are likely to be tied to the length of time the agreement has been in place - so for example you may pay 5% of the balance in the first year then 4% in the second year and so forth. This is done to recoup money lost on potential interest charges which would have been paid over the agreed term now reduced by the early repayment.

An example of this would be if you have received a lump sum as part of your pension. You could use this amount to clear your existing mortgage and reduce your monthly outgoings and more importantly end the repayments which are subject to interest accrual.


Q: Will a lump sum reduction save me money?

A: Potentially, but that depends on whether early repayment penalties apply and if so, how much they would cost when compared to how much of your mortgage is left to pay off.

Jargon Buster

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