Mortgage overpayment

How it works

The calculator works month by month. Interest is charged at your rate on what you owe, then your normal repayment comes off — the payment that clears the mortgage exactly at the end of its term. Then it does the same again with your overpayment added every month, and compares the two: the interest paid and how long it takes.

It keeps your rate the same throughout; in reality it changes when each fixed deal ends. It assumes overpaying shortens the term, rather than lowering your monthly payment.

Things to know

• Most fixed and tracker deals let you overpay up to 10% of the balance each year without a charge. Beyond that, an early repayment charge — a percentage of the extra — usually applies. The calculator warns you if you’d go over 10%.
• Some lenders let you choose whether an overpayment shortens the term or lowers the payment. Shortening the term saves the most interest.
• Overpaying earns your mortgage rate, guaranteed — but money paid into a mortgage is hard to get back out.

A worked example

Say you owe £220,000 at 4.5% with 25 years left. Your payment is about £1,223 a month, and you’d pay about £146,800 in interest over the term.

Overpay £200 a month and you’d be mortgage-free in 19 years 4 months — 5 years 8 months sooner — and save about £37,200 in interest. £2,400 a year is about 1.1% of the balance, well within a typical 10% allowance.

Questions people ask

Is it better to overpay or to save and invest?

Overpaying gives a guaranteed return at your mortgage rate. Savings paying more after tax, or investing over many years, might do better but aren’t certain. Many people keep an emergency fund first. The full plan can compare both, year by year.

Lump sum or monthly?

A lump sum paid sooner saves a little more, because interest is charged on what you owe. Regular monthly overpayments are easier to keep up. Either way, check your deal’s limit.

Will it lower my monthly payment?

That depends on your lender. Some shorten the term, some lower the payment and some let you choose. This calculator shows the shorter term.