How does overpaying a mortgage save money?

Every pound you overpay reduces your outstanding balance immediately. Because interest is calculated on the current balance, a lower balance means less interest charged the following month and every month after that. The compounding effect means even small regular overpayments save a disproportionately large amount of interest over the life of the mortgage.

Is there a limit on how much I can overpay?

Most fixed-rate mortgage deals allow overpayments of up to 10% of the outstanding balance per year without penalty. Exceeding this may trigger an early repayment charge (ERC). Tracker and variable rate mortgages are often more flexible. Check your mortgage terms or ask your lender before making large lump-sum overpayments.

Should I overpay my mortgage or invest instead?

Whether to overpay or invest depends on your mortgage rate versus expected investment returns, your tax position, and your risk tolerance. If your mortgage rate (e.g. 4.5%) is higher than your expected after-tax investment return, overpaying gives a guaranteed return equivalent to the mortgage rate. If you're a higher-rate taxpayer with remaining ISA allowance, the tax-free investment returns may tip the balance toward investing. Most people benefit from doing both where possible.

Does the overpayment reduce my monthly payment or my term?

This depends on your lender's policy. Most lenders apply overpayments to the balance and maintain your existing monthly payment, which shortens the term. Some allow you to formally reduce the monthly payment instead (which reduces cashflow pressure but saves less interest). This calculator assumes overpayments reduce the term, which is the most common and most beneficial approach.

Can I make a lump-sum overpayment instead of regular monthly overpayments?

Yes, and lump-sum overpayments work on the same principle: they reduce the balance immediately and save interest from that point forward. To model a one-off overpayment, enter it divided by 12 (to spread it as a monthly equivalent), or adjust your remaining balance downward to reflect the lump sum you have already made.

What happens if I want to stop overpaying?

You are not committed to continuing overpayments. If you stop, your mortgage simply reverts to the standard scheduled payments. The interest you have already saved by overpaying is locked in, and your remaining balance will be lower than it would have been otherwise. You can restart at any time, subject to your lender allowing it.

Property & Mortgages

Mortgage Overpayment Calculator

See how much interest and time you save by making regular overpayments on your mortgage.

Updated April 2026

Your details

Outstanding balance

Annual interest rate

Remaining term

Monthly overpayment

Most lenders allow up to 10% of balance per year penalty-free

Your results

£200,000 Mortgage with £200/month Overpayment

Interest saved

£22,936

Time saved

4 years

New monthly payment: £1,465.30
New term: 16 years
New total interest: £80,735

Breakdown

	Without overpayment	With overpayment
Monthly payment	£1,265.30	£1,465.30
Total interest	£103,672	£80,735
Mortgage term	20 years	16 years
You save		£22,936

Interest with overpayment£80,735

Interest without overpayment£103,672

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Overpayment Guide

Why mortgage overpayments work

Mortgage interest is calculated on the current outstanding balance each month. Every overpayment permanently reduces that balance, which means less interest is charged the following month, and every month after that for the rest of the term.

The Compounding Effect

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.

Overpayment Limits

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.

Overpay vs Invest

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.

Term vs Payment

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.

Frequently asked questions

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Sources & methodology

Built and maintained by Tim, a personal finance enthusiast (not a financial adviser). Last reviewed April 2026. Rates and thresholds come from official UK government publications.

FCA: Mortgage conduct of business · Affordability rules and lending standards
Bank of England: Base rate · Current and historical base rates

Figures are estimates only. This is not financial or tax advice. For help with your specific situation, speak to HMRC or a qualified adviser.