Paying more than the required mortgage payments each month can save thousands of pounds in interest over the life of the loan. It can also mean you’re mortgage-free years ahead of schedule.
Our Mortgage Overpayment Calculator is an easy way to find out how different overpayments can reduce interest costs and shorten the term of your mortgage, and can be a great motivator to get you started.
How to use our mortgage overpayment calculator
Here is a step by step guide on how to use the calculator. Note that this only applies to amortization mortgages, where you pay both principal and interest with each monthly payment.
If you have an overpayment in mind
- Change the toggle button to the desired position and enter the amount of the overpayment
- Add information about the outstanding amount of the mortgage, the interest rate, the term in which you took the mortgage and how many years are left
- The calculator will reveal how many years this overpayment would save you over the term of your mortgage and how much you would save in total interest. You’ll also get a breakdown of current monthly payments divided into principal and interest, and how the overpayment would compare.
If you don’t have an overpayment in mind
- Change the toggle button to the desired position and enter the number of years you want to be mortgage free
- Add information about the outstanding amount of the mortgage, the interest rate, the initial term in which you took the mortgage and how many years remain
- The calculator will reveal how much more you’d have to pay to reach your goal and how much interest you’d save overall if you did reach it.
Please note that the calculator is for illustration purposes only. It also refers only to your current interest rate, which is likely to change over the course of your mortgage.
How mortgage overpayments work
When you take out a repayment mortgage, the lender calculates how much you need to pay 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 be overpaying the mortgage.
Making a mortgage overpayment means you’ll pay off your mortgage 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 Early Repayment Charges (ERC). This applies to fixed rate offers as well as variable rate.
There are two ways to overpay: every month or in a lump sum.
Make monthly overpayments
If you have excess disposable income each month, you could put it to good use by making regular mortgage payments. For example, if your monthly mortgage payment is £1,000, you may want to pay £1,200 instead.
Doing so will mean that you will reduce the term of your mortgage; In addition to paying it off faster, this will mean you’ll pay less interest overall.
Mortgage Lump Sum Overpayments
Instead of making regular monthly overpayments, you may want to pay a lump sum on your mortgage, if the amount is within the 10% penalty-free allowance. This could be an option if you receive an inheritance or an annual bonus at work, for example.
When you overpay your lump sum, your lender may suggest that you reduce future regular monthly payments but keep the term of your mortgage the same, or keep your monthly payments the same and reduce the term of your mortgage.
It is almost always more profitable to keep monthly payments the same and reduce the term of the mortgage. This will result in your mortgage debt being paid off earlier than expected.
How much money can you save by overpaying?
You can save significant sums by overpaying your mortgage. Here are some examples, with all figures rounded to the nearest pound.
You have a £200,000 repayment mortgage with 20 years remaining at a 3% interest rate. Your normal monthly payment would be £1,109.
If you were to increase this by £100 to £1,209, you would reduce the term of the mortgage to 17 years and 10 months, which means paying it off two years and two months early.
It 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 balloon overpayment of £20,000 and kept your monthly payments the same, you would reduce the term of your mortgage by two years and seven months.
It 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 single payment of £20,000 and an overpayment of £100 per month), you would reduce your term by four years and five months and save £20,797 in interest.
Will I definitely be allowed to overpay?
Is overpaying always a good idea?
What are the advantages of overpaying your mortgage?
Are there any downsides?