Mortgage Overpayment Calculator
See how much you could save by overpaying your mortgage. Enter your mortgage details and overpayment amount to calculate the interest saved, time reduced, and compare your mortgage with and without overpayments.
How Mortgage Overpayments Work
A mortgage overpayment is any amount you pay towards your mortgage above and beyond your required monthly payment. When you make an overpayment, the extra money goes directly towards reducing your outstanding mortgage balance. Because interest is calculated on the remaining balance, reducing it means you pay less interest each month going forward. This creates a compounding effect where the savings grow over time.
For example, if you have a £200,000 repayment mortgage at 4.5% over 25 years, your standard monthly payment would be approximately £1,112. If you overpay by £200 per month, that extra £200 is applied directly to the capital balance. In the first month, your balance drops by £200 more than it normally would. In the second month, interest is calculated on this lower balance, so slightly more of your standard payment goes towards capital too. This snowball effect means the benefits of overpaying accelerate over time.
Most UK mortgage lenders apply overpayments to reduce the mortgage term rather than the monthly payment. This means your required monthly payment stays the same, but you become mortgage-free sooner. The result is a significant saving in total interest paid over the life of the mortgage, because you are borrowing money for fewer years.
Types of Overpayment
There are two main ways to overpay your mortgage, and you can use either or both depending on your circumstances.
Regular Monthly Overpayments
This is the most common approach. You increase your monthly payment by a set amount, for example paying £1,312 instead of your required £1,112. Many lenders allow you to set up a higher standing order directly, while others require you to make separate manual payments each month. Regular overpayments are easy to budget for and provide a steady, predictable reduction in your mortgage balance. You can usually adjust or stop them at any time if your circumstances change, giving you flexibility that a higher committed payment would not.
Lump Sum Overpayments
A lump sum overpayment is a one-off payment that immediately reduces your mortgage balance by a significant amount. This might come from a work bonus, inheritance, savings, or the proceeds of selling another asset. Because the full amount is applied to the balance straight away, a lump sum overpayment made early in the mortgage term can have a dramatic impact on total interest saved. The earlier in the term you make the payment, the greater the saving, because you avoid paying interest on that amount for all the remaining years of the mortgage.
Combining Both Approaches
Many homeowners combine regular monthly overpayments with occasional lump sums for maximum impact. For instance, you might set up a monthly overpayment of £150 and then make an additional lump sum payment whenever you receive a bonus or have surplus savings. This combined approach maximises the benefit while maintaining flexibility, and our calculator allows you to model both simultaneously.
The 10% Overpayment Rule
Most UK mortgage lenders allow borrowers to overpay up to 10% of the outstanding mortgage balance per year without incurring any early repayment charges. This is often referred to as the "10% rule" and applies during fixed rate, tracker, or discounted rate periods. The 10% allowance is typically calculated on the balance at the start of each year of the deal, not on the original loan amount.
For example, if your outstanding mortgage balance is £180,000 at the start of your deal year, you could overpay up to £18,000 that year without penalty. This limit resets each year of the deal. If you overpay beyond the 10% limit, you will be charged an early repayment charge on the excess amount only, not the entire overpayment.
It is important to check your specific mortgage terms, as some lenders offer more generous overpayment allowances of 15% or even 20%, while a few may have stricter limits. Once your fixed or discounted period ends and you move to the lender's standard variable rate (SVR), you can typically overpay by any amount without penalty.
| Outstanding Balance | 10% Annual Allowance | Monthly Equivalent |
|---|---|---|
| £100,000 | £10,000 | ~£833/month |
| £150,000 | £15,000 | ~£1,250/month |
| £200,000 | £20,000 | ~£1,667/month |
| £250,000 | £25,000 | ~£2,083/month |
| £300,000 | £30,000 | ~£2,500/month |
Early Repayment Charges Explained
Early repayment charges (ERCs) are fees that mortgage lenders may impose if you repay more than the allowed overpayment limit during a special rate period such as a fixed rate, tracker, or discount deal. ERCs are designed to compensate the lender for the interest income they lose when you repay early. They are calculated as a percentage of the amount overpaid beyond your allowance, and the percentage typically decreases each year of the deal.
A common ERC structure for a 5-year fixed rate mortgage is as follows:
| Year of Deal | Typical ERC | Cost on £10,000 Excess |
|---|---|---|
| Year 1 | 5% | £500 |
| Year 2 | 4% | £400 |
| Year 3 | 3% | £300 |
| Year 4 | 2% | £200 |
| Year 5 | 1% | £100 |
Before making large overpayments, always check your mortgage offer document for the exact ERC terms. In some cases, the interest saving from overpaying may still outweigh the ERC, particularly towards the end of a deal period when the charge is lowest. A mortgage adviser can help you calculate whether it is cost-effective to overpay beyond your allowance in specific circumstances.
Worked Examples
Example 1: £200 Monthly Overpayment on a £200,000 Mortgage
Consider a £200,000 repayment mortgage at 4.5% interest over a 25-year term. The standard monthly payment is approximately £1,112. If you add a monthly overpayment of £200, here is the impact:
- Standard mortgage: 25 years (300 months), total interest approximately £133,560
- With £200/month overpayment: approximately 19 years 2 months (230 months), total interest approximately £98,190
- Interest saved: approximately £35,370
- Time saved: approximately 5 years 10 months
By paying an extra £200 per month, you could save over £35,000 in interest and become mortgage-free nearly 6 years early. The total extra amount paid is approximately £46,000 over 230 months, but the interest saving of £35,370 means the net cost of becoming mortgage-free early is just £10,630. This is one of the most effective ways to reduce your total borrowing costs.
Example 2: £10,000 Lump Sum Overpayment
Using the same £200,000 mortgage at 4.5% over 25 years, suppose you make a one-off lump sum overpayment of £10,000 at the start of the mortgage:
- Standard mortgage: 25 years, total interest approximately £133,560
- With £10,000 lump sum: approximately 23 years 7 months, total interest approximately £120,140
- Interest saved: approximately £13,420
- Time saved: approximately 1 year 5 months
A single £10,000 overpayment at the start of the mortgage saves over £13,000 in interest. That is a return of 134% on the overpayment amount over the life of the mortgage. The earlier in the mortgage term you make a lump sum payment, the greater the compounding benefit, because you avoid paying interest on that amount for a longer period.
Example 3: Combined Monthly and Lump Sum Overpayments
Combining both strategies on the same £200,000 mortgage at 4.5% over 25 years, with a £10,000 lump sum at the start plus £200 per month ongoing:
- Standard mortgage: 25 years, total interest approximately £133,560
- With combined overpayments: approximately 17 years 10 months, total interest approximately £83,900
- Interest saved: approximately £49,660
- Time saved: approximately 7 years 2 months
The combined approach delivers the most dramatic results, cutting nearly £50,000 from the total interest bill and reducing the mortgage term by over 7 years. This demonstrates how even modest regular overpayments, combined with occasional lump sums, can fundamentally transform the cost and duration of a mortgage.
Should You Overpay Your Mortgage?
Whether overpaying your mortgage is the right decision depends on your individual financial circumstances. Here are the key factors to consider before deciding where to put your surplus cash.
When Overpaying Makes Sense
- Your mortgage rate is higher than savings rates: If you are paying 5% on your mortgage but only earning 3% on savings, overpaying your mortgage is effectively a guaranteed tax-free return of 5%. This is equivalent to a gross savings rate of 6.25% for a basic rate taxpayer or 8.33% for a higher rate taxpayer.
- You want to be mortgage-free sooner: Overpaying is one of the most effective ways to reduce your mortgage term and achieve the security and peace of mind that comes with owning your home outright.
- You have already built an emergency fund: If you have 3 to 6 months of essential expenses saved in an accessible account, putting surplus money into your mortgage is a sensible next step.
- You have no higher-interest debt: Clearing credit cards, personal loans, or car finance first will almost always save more than overpaying your mortgage, as these debts typically carry much higher interest rates.
When You Might Hold Off
- You do not have an emergency fund: Before overpaying, ensure you have enough accessible savings to cover unexpected expenses like car repairs, boiler replacement, or a period of reduced income. Money paid into your mortgage is generally not accessible again.
- You have higher-rate debts: Credit card debt at 20% APR costs far more than a mortgage at 4% to 5%. Pay off expensive debts first, then redirect those payments to mortgage overpayments.
- Your employer offers pension matching: If your employer matches pension contributions, for example matching up to 5% of your salary, this is effectively free money and typically a better return than mortgage overpayments.
- Your mortgage rate is very low: If you are on a rate below 2% to 3%, you may earn more by investing the money elsewhere, though this carries investment risk whereas mortgage overpayment is a guaranteed saving.
Overpaying vs Investing
A common debate is whether surplus money should be used to overpay the mortgage or invested in stocks and shares. Historically, the stock market has returned an average of 7% to 8% per year over the long term, which would outperform most mortgage rates. However, investment returns are not guaranteed and can be negative in any given year, whereas the saving from overpaying your mortgage is guaranteed and entirely risk-free.
The opportunity cost of mortgage overpayment is the return you could have earned by investing that money instead. If your mortgage rate is 4.5% and you believe you can consistently earn 7% after fees in a stocks and shares ISA, the mathematical advantage favours investing. But this ignores the emotional and practical value of being mortgage-free, the certainty of the saving, and the fact that investment returns are never guaranteed.
A balanced approach works well for many people: maximise your pension contributions (especially if your employer matches them), use your annual ISA allowance for long-term investments, and use remaining surplus cash to overpay the mortgage. This diversifies your financial position rather than putting all spare money into a single strategy.
Overpaying vs Paying Into a Pension
Pension contributions receive tax relief at your marginal rate, which makes them extremely tax-efficient. A basic rate taxpayer contributing £100 to a pension effectively pays only £80, as the government adds £20 in tax relief. Higher rate taxpayers can claim an additional £20 through their self-assessment, making the effective cost just £60. If your employer also matches contributions, the effective return is even higher.
For most people, maximising employer pension matching should take priority over mortgage overpayments. Once you are capturing the full employer match, additional pension contributions versus mortgage overpayments become a matter of personal preference, access to funds (pension money is locked until age 55, rising to 57 from 2028), and your overall financial plan.
Tax Implications of Mortgage Overpayments
There are no direct tax implications for overpaying your mortgage on your main residence. The interest saving from overpaying is effectively a tax-free return, which makes it particularly attractive compared to savings accounts where interest above the Personal Savings Allowance is taxed at your marginal income tax rate.
For basic rate taxpayers, the Personal Savings Allowance is £1,000 per year, meaning the first £1,000 of savings interest is tax-free. Higher rate taxpayers have a £500 allowance, and additional rate taxpayers have no allowance at all. Once you exceed these thresholds, savings interest is taxed at your marginal rate of 20%, 40%, or 45%.
To compare fairly, you need to calculate the after-tax return on savings. A savings account paying 4.5% gross gives a basic rate taxpayer an after-tax return of 3.6% once the Personal Savings Allowance is exceeded. For a higher rate taxpayer, the after-tax return drops to 2.7%. Meanwhile, overpaying a mortgage at 4.5% gives an effective return of 4.5% that is always tax-free regardless of the amount. This is why, at similar headline rates, mortgage overpayment is often the better option financially.
For buy-to-let properties, the situation is different. Mortgage interest on rental properties receives a tax credit at the basic rate of 20%, and overpayments reduce the interest you can claim relief on. Speak to a tax adviser before overpaying a buy-to-let mortgage, as the calculation is more complex and depends on your overall tax position.
Common Mistakes When Overpaying Your Mortgage
1. Not Checking Your Overpayment Allowance
The most common and potentially costly mistake is overpaying more than your lender allows without first checking the terms of your mortgage. Exceeding the 10% allowance during a fixed rate period can trigger early repayment charges that wipe out the interest saving and leave you worse off. Always check your mortgage offer document or call your lender before making significant overpayments.
2. Overpaying Before Building an Emergency Fund
Once money is paid into your mortgage, it is generally not accessible without remortgaging or taking out a further advance. If you overpay aggressively but then face an unexpected expense such as a car breakdown or boiler failure, you may be forced to borrow at a much higher rate on a credit card or personal loan to cover it. Build a cash buffer of at least 3 months' essential expenses before directing surplus funds to mortgage overpayments.
3. Ignoring Higher-Interest Debt
If you have a credit card balance at 20% APR and a mortgage at 4.5%, every pound directed to the credit card saves four times more in interest than a pound directed to the mortgage. Always prioritise paying off the most expensive debt first using the avalanche method, then redirect those payments to mortgage overpayments once the expensive debt is cleared.
4. Forgetting About Pension Contributions
If your employer offers pension matching and you are not maximising it, you are leaving free money on the table. Employer pension contributions are effectively an immediate 100% return on your money before any investment growth. Additionally, personal pension contributions receive tax relief at your marginal rate. Ensure you are capturing all available pension benefits before allocating surplus cash to mortgage overpayments.
5. Not Reviewing Regularly
Your financial situation and mortgage rate will change over time. What makes sense today may not be optimal in two years. Review your overpayment strategy at least annually, and particularly when your mortgage deal is up for renewal. If your new mortgage rate is lower, you might choose to redirect some overpayment money towards investments or savings. If it is higher, increasing overpayments becomes even more valuable.