Mortgage Overpayment Calculator

About Mortgage Overpayment Calculator

See exactly how much time and interest you save by overpaying your mortgage. Enter your balance, rate, and remaining term, then add a monthly overpayment or lump sum to compare your mortgage with and without extra payments. Results include interest saved, months saved, and a year-by-year breakdown.

How Mortgage Overpayments Save Money

Overpayments go directly to reducing the principal balance. Since interest is calculated on the outstanding balance each month, a lower balance means less interest charged, which means more of your next regular payment goes to principal. This creates a compounding saving effect.

Worked example: £200,000 mortgage at 4.5% over 25 years (monthly payment: £1,112):

£100/month extra saves over £26,000 in interest and takes over 4 years off the mortgage. That is £1,200/year in overpayments saving £26,000 total - a return of over 20x.

Monthly Overpayment vs Lump Sum

Both reduce your balance and save interest, but they work differently:

Lump sum example: A £10,000 lump sum on the same £200,000 mortgage at 4.5% over 25 years (applied at year 5) saves roughly £16,000 in interest and reduces the term by about 18 months.

The 10% Overpayment Rule

Most UK fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without incurring an Early Repayment Charge (ERC). On a £200,000 mortgage, that is up to £20,000 per year (£1,667/month).

ERCs typically range from 1-5% of the overpaid amount, decreasing each year of the fixed term. Always check your specific mortgage terms. Some lenders:

• Allow unlimited overpayments (common on tracker and variable rate mortgages)
• Calculate the 10% allowance from the start of the mortgage year, not the calendar year
• Carry forward unused allowance (rare, but some do)

Should You Overpay or Invest?

This is one of the most debated personal finance questions. The basic rule:

• Overpay if: Your mortgage rate is higher than the after-tax return you could earn elsewhere. Overpaying at 5% mortgage rate is a guaranteed 5% return (risk-free).
• Invest if: You expect investment returns to exceed your mortgage rate after tax. Stock market average returns are ~7%, but they are not guaranteed and come with volatility.
• Always first: Build a 3-6 month emergency fund before aggressively overpaying. Being mortgage-free is no help if you need to borrow at higher rates for an emergency.

A common balanced approach: overpay modestly (£100-200/month) while also investing in a stocks and shares ISA. This hedges both directions.

Offset Mortgages

An alternative to overpayment: offset mortgages link your savings account to your mortgage. Your savings balance is "offset" against the mortgage, so you only pay interest on the difference. £20,000 in savings against a £200,000 mortgage means you pay interest on £180,000. The savings remain accessible, unlike overpayments which are usually non-refundable.

For calculating your original mortgage payment, use the mortgage calculator. If you are deciding between overpaying or saving, the compound interest calculator helps model the savings alternative.

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