Mortgage Overpayment Calculator

Small amounts, big savings

Because interest compounds on the balance, the savings from an early overpayment grow over the full remaining term. £100 overpaid in year one saves more than £100 overpaid in year ten, because the earlier saving has longer to compound. On a £200,000 mortgage at 4.5%, overpaying £200 per month saves around £26,000 in interest and clears the mortgage over four years early.

Early repayment charges

Most fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without penalty. Exceeding this triggers an early repayment charge (ERC), typically 1% to 5% of the excess amount. Variable and tracker rate mortgages are usually more flexible. Always check your mortgage terms before making large overpayments, and if you have significant savings to deploy, consider waiting until the fixed period ends.

Should you overpay or invest?

Overpaying your mortgage gives a guaranteed return equal to your mortgage interest rate. If your rate is 4.5%, every pound overpaid saves 4.5% per year in future interest, risk-free. Whether this beats investing depends on your expected investment returns, tax position, and attitude to risk. For most people, a balanced approach works well: maximise any employer pension match first, then split remaining surplus between overpaying and investing.

Reducing your term vs reducing your payment

Most lenders apply overpayments to the balance and keep your regular payment the same, which shortens the term. This is usually the best outcome financially. Some lenders allow you to formally recalculate to a lower monthly payment instead. Reducing the payment helps cashflow but saves less interest overall, because you will be paying for longer. If you have breathing room, keeping the payment level and shortening the term is the more efficient choice.

Build your emergency fund first

Overpaying a mortgage is illiquid, once money goes into the property, it is difficult to access quickly without remortgaging or selling. Most financial advisers recommend keeping three to six months of essential expenses in accessible savings before directing surplus cash toward overpayments. If an unexpected cost arises and you have no savings buffer, you may find yourself taking on expensive short-term debt while sitting on equity you cannot quickly access.

Also check whether your mortgage has a borrow-back facility (also called a drawdown feature or flexible overpayment reserve). Some lenders allow you to reclaim overpayments you have made, giving you the best of both worlds, interest savings while you hold the money, with access if you need it. Not all mortgages offer this, so check your product terms.

Offset mortgages: an alternative approach

An offset mortgage links your savings account to your mortgage. Interest is calculated on the difference between your outstanding mortgage balance and your savings balance. If you have a £200,000 mortgage and £20,000 in savings, you only pay interest on £180,000 — but your savings remain accessible. This achieves a similar interest saving to overpaying, without permanently committing the cash. The trade-off is that offset mortgages often carry a slightly higher interest rate than equivalent repayment products, and the savings earn no interest themselves (instead, the benefit is the interest not charged on the mortgage).

For higher-rate taxpayers, offset mortgages can be particularly effective: the equivalent interest saving is tax-free (you are avoiding interest rather than earning it), whereas savings interest above the Personal Savings Allowance (£500 for higher-rate taxpayers) is taxable income.