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Paying more than your required mortgage payments every month can save thousands of pounds in interest over the life of the loan. It can also mean you are mortgage-free years ahead of plan.
Our Mortgage Overpayment Calculator is a simple way to find out how different overpayments can bring down interest costs and shorten your mortgage term – and it can be a great motivator to get you started.
How to Use Our Mortgage Overpayment Calculator
Here’s a step-by-step guide on how to use the calculator. Bear in mind it applies to repayment mortgages only, where you pay both the capital and interest with each monthly payment.
If you have an overpayment in mind
- Switch the toggle button to the desired position and enter the overpayment amount
- Add information on the outstanding mortgage sum, interest rate, the term you took the mortgage over, and how many years are left
- The calculator will reveal how many years this overpayment would save on your mortgage term, and how much it would save in total interest. You’ll also get a breakdown of current monthly repayments divided into capital and interest – and how the overpayment would compare.
If you do not have an overpayment in mind
- Switch the toggle button to the desired position and enter the number of years in which you aim to be mortgage-free
- Add information on the outstanding mortgage amount, interest rate, the initial term you took the mortgage over, and how many years are left
- The calculator will reveal how much you would need to overpay to achieve your goal, and how much interest you would save overall if you reached it.
Bear in mind that the calculator is for illustrative purposes only. It also refers just 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 back every month to ensure the loan is paid off at the end of the agreed term. If you pay more than this amount, you’ll be making a mortgage overpayment.
Making a mortgage overpayment means you’ll pay off your mortgage quicker and potentially save thousands of pounds in interest. Most lenders allow you to overpay by 10% of the outstanding mortgage amount every year without paying early repayment charges (ERCs). This applies to fixed rate, as well as variable rate, deals.
There are two ways to overpay – every month or in one lump sum.
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Making monthly overpayments
If you have surplus 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 might want to pay £1,200 instead.
Doing so will mean you reduce the term of your mortgage – as well as paying it off quicker, this will mean you pay less interest overall.
Lump sum mortgage overpayments
Rather than making regular monthly overpayments, you might want to pay a lump sum off your mortgage instead – 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 make the lump-sum overpayment, your lender may suggest you reduce future regular monthly payments but keep the mortgage term the same – or keep the monthly payments the same and reduce your mortgage term.
It’s almost always more cost-effective to keep your monthly payments the same and reduce your mortgage term. This will result in you clearing your mortgage debt ahead of schedule.
Frequently Asked Questions
How much money can you save by overpaying?
You can save significant sums by overpaying your mortgage. Here are a few examples, with all figures rounded to the nearest pound.
You have a £200,000 repayment mortgage with 20 years left to run with an interest rate of 3%. Your normal monthly payment would be £1,109.
If you increased this by £100 to £1,209, you would reduce the mortgage term to 17 years and 10 months, which means paying it off two years and two months quicker.
You’d 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 lump sum overpayment of £20,000 and kept your monthly payments the same, you’d reduce your mortgage term by two years and seven months.
You’d also reduce the total amount of interest you pay from £66,206 to £51,165 – a saving of £15,041.
If you made both kinds of overpayments – a £20,000 lump sum payment and overpaid by £100 a month – you’d reduce your term by four years and five months and save £20,797 in interest.
Will I definitely be allowed to overpay?
Whether you can overpay, and by how much, will depend on the type of mortgage you have.
Flexible offset mortgages are designed to receive unlimited overpayments, while lifetime trackers also often allow unlimited overpayments. If you’re paying your lender’s standard variable rate (SVR), you can also usually overpay by as much as you want, as you are outside any specific deal.
For fixed rate mortgages or time-limited discounts or trackers, you can usually overpay by 10% of the loan amount each year. Be cautious, though – if you overpay by too much, early repayment charges may apply and wipe out a proportion of any savings.
Always check your mortgage agreement or contact the lender before making an overpayment.
Is overpaying always a good idea?
Mortgage overpayments are not right for everyone. First, not every mortgage deal allows overpayments, and many impose a limit on how much you can overpay.
Secondly, it may be that any spare cash you have could be put to better use – such as clearing more expensive debts (those with a higher rate of interest).
What are the advantages of overpaying your mortgage?
As well as clearing your mortgage sooner and paying less interest overall, making overpayments will have the effect of increasing the amount of equity you have in your home (equity being what you own outright, not what you owe a mortgage on).
This in turn, means you’ll have a lower loan-to-value ratio (LTV), which will put you in line for cheaper mortgage deals if and when you want to remortgage.
Are there any downsides?
Think carefully before making overpayments if there’s a chance you may want the money back. Once you have made the overpayment, getting it repaid is usually not permitted – you may need to go through an entire remortgaging process, which could be costly, even if your circ*mstances allow.
What is a mortgage calculator?
Working out what the cost of a mortgage will be against a range of different scenarios is tricky mental arithmetic. However, an online mortgage calculator does all sums for you.
You’ll just need to know the key points to enter. These include the amount you want to borrow, and over how long, and the interest rate.
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