Mortgage Overpayments: How Much Do They Save?
Making even small regular overpayments can slash years off your mortgage and save thousands in interest. Here’s how it works — with examples you can test in CalcFlow’s calculators.
1. What Is an Overpayment?
An overpayment is when you pay more than your standard monthly mortgage payment — either as a one-off lump sum or as a recurring amount. Most lenders allow up to 10% of your balance to be overpaid per year without penalty during a fixed-rate period.
2. Why Overpayments Matter
Mortgages charge interest daily or monthly based on your remaining balance. Every pound you pay early reduces the balance sooner — meaning less interest is charged overall. It’s one of the safest, guaranteed returns you can make on your money.
Example:
On a £250,000 mortgage at 5% over 25 years, your normal payment is around £1,462 per month. Adding just £100 per month as an overpayment could:
- Shorten your term by around 3 years
- Save more than £25,000 in interest
Exact savings depend on your rate, balance, and term — use the Loan Calculator to test scenarios.
3. Regular vs Lump-Sum Overpayments
Regular overpayments reduce your balance consistently, giving compounding benefits as each payment saves interest for all future months.
Lump-sum overpayments (e.g., from bonuses or savings) give an instant impact — ideal if you receive a windfall. Both methods work well; the sooner you make them, the more you save.
4. Reducing Term vs Reducing Payment
When you overpay, you usually have two options:
- Keep term the same: Your monthly payment reduces, but you still save some interest.
- Keep payment the same: Your term shortens — the most powerful long-term saving option.
5. Overpayment Limits and Penalties
Most fixed-rate mortgages allow up to 10% of the remaining balance to be overpaid each year without an Early Repayment Charge (ERC). Beyond that, ERCs may apply — typically 1–5% of the overpaid amount. Tracker or variable-rate deals usually allow unlimited overpayments.
6. When Overpaying Isn’t Ideal
- If you have high-interest debts (like credit cards), pay those off first.
- Ensure you keep an emergency fund — overpaid money can be hard to access.
- Check your mortgage’s small print for ERCs or overpayment caps.
7. Real-World Comparison
| Scenario | Monthly Payment | Term | Total Interest |
|---|---|---|---|
| No overpayments | £1,462 | 25 years | £187,500 |
| £50 per month extra | £1,512 | 23 years 5 months | £173,000 |
| £100 per month extra | £1,562 | 22 years | £162,000 |
| £250 per month extra | £1,712 | 19 years 2 months | £140,000 |
8. Key Takeaways
- Overpaying early gives the biggest savings due to compounding effects.
- Even small monthly extras make a big long-term difference.
- Always check overpayment limits before making large payments.
- Use CalcFlow’s Loan Repayment Calculator to model how much time and interest you can save.