Paying more than your required mortgage payments each month can save thousands of pounds in interest over the life of the loan. It can also mean that you are mortgage-free years ahead of schedule.
Our Mortgage Overpayment Calculator is a simple way to find out how different overpayments can reduce interest costs and shorten the term of your mortgage – and it can be a great motivation to get you started.
How to use our Mortgage Overpayment Calculator
Here is a step by step guide on how to use the calculator. Keep in mind that this only applies to payout mortgages, where you pay both principal and interest with each monthly payment.
If you have an overpayment in mind
- Toggle the toggle button to the desired position and enter the overpayment amount
- Add information about the outstanding mortgage, interest rate, how long you’ve had the mortgage, and the number of years remaining
- The calculator will reveal how many years this overpayment would save over the life of your mortgage and how much it would save you in terms of total interest. You’ll also get a breakdown of current monthly repayments split into principal and interest – and how the overpayment would compare.
If you don’t have an overpayment in mind
- Toggle the toggle button to the desired position and enter the number of years you aim to be mortgage free
- Add information about the current mortgage amount, interest rate, original term you took out the mortgage, and the number of years remaining
- The calculator will reveal how much you would need to overpay to reach your goal and how much interest you would save overall if you reached it.
Keep in mind that the calculator is for guidance only. It also only refers to your current interest rate, which is subject to change over the course of your mortgage.
How mortgage overpayments work
When you take out a repayment mortgage, the lender calculates the amount you need to repay each month to ensure that the loan is paid off at the end of the agreed term. If you pay more than this amount, you will overpay the mortgage.
Overpaying means you’ll pay off your loan faster and potentially save thousands of pounds in interest. Most lenders allow you to overpay 10% of the outstanding mortgage amount each year without paying a prepayment charge (ERC). This applies to both fixed rate and variable rate offers.
There are two ways to overpay – monthly or all at once.
Make monthly overpayments
If you have excess disposable income each month, you can put it to good use by making regular mortgage payments. For example, if your monthly mortgage payment is £1,000, you might want to pay £1,200 instead.
This means you reduce the term of your mortgage – in addition to paying it off faster, it means you pay less interest overall.
Lump-sum mortgage overpayments
Rather than making regular monthly overpayments, you may want to pay a lump sum on your mortgage instead – if the amount is within the 10% penalty-free limit. This could be an option if you receive an inheritance or an annual bonus at work, for example.
When you make the lump sum overpayment, your lender may suggest that you reduce future regular monthly payments, but keep the mortgage term the same – or keep the same monthly payments and reduce the term of your mortgage.
It’s almost always more cost-effective to keep the same monthly payments and reduce the term of your mortgage. This will allow you to settle your mortgage debt sooner than expected.
Frequently Asked Questions
How much money can you save by paying too much?
You can save significant sums by overpaying your mortgage. Here are some examples, with all numbers rounded to the nearest pound.
You have a repayment mortgage of £200,000 with 20 years to run with an interest rate of 3%. Your normal monthly payment would be £1,109.
If you increased it from £100 to £1,209, you would reduce the term of the mortgage to 17 years and 10 months, meaning it would be paid off two years and two months faster.
You would also reduce the total amount of interest you paid from £66,206 to £58,403, a saving of £7,803.
If you had the same mortgage and made a lump sum overpayment of £20,000 and kept the same monthly payments, you would reduce the term of your mortgage by two years and seven months.
You would also reduce the total amount of interest you pay from £66,206 to £51,165, a saving of £15,041.
If you made both types of overpayments – a £20,000 lump sum and a £100 per month overpayment – you cut your term by four years and five months and save £20,797 in interest.
Will I definitely be allowed to overpay?
Is paying too much always a good idea?
What are the benefits of overpaying your mortgage?
Are there any disadvantages?