Mortgage Overpayment Calculator
Find out exactly how much interest you save and how many years you cut from your mortgage by making monthly overpayments. Uses UK compound amortisation with 2025/26 rates.
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What Is Mortgage Overpayment?
A mortgage overpayment is any payment you make above your contractual monthly repayment. If your standard monthly payment is £900 and you pay £1,100, you have made a £200 overpayment. This extra money goes directly towards reducing your outstanding capital balance rather than paying off interest.
Because your mortgage interest is calculated on your outstanding balance, every pound you pay off early reduces the amount on which future interest is charged. This creates a compounding benefit: the earlier you overpay, the more you save, because interest is front-loaded in the early years of a repayment mortgage.
For a typical UK homeowner with a £200,000 mortgage at 4.5% over 25 years, overpaying just £200 per month saves approximately £23,000 in interest and cuts around 4 years and 5 months off the mortgage term. That is a significant financial benefit from a relatively modest commitment.
UK Mortgage Overpayment Rules: The 10% Rule
The vast majority of UK mortgage lenders allow borrowers to overpay up to 10% of the outstanding mortgage balance per year without incurring an Early Repayment Charge (ERC). This is widely known as the "penalty-free overpayment allowance".
For example, if your outstanding mortgage balance is £180,000, you can overpay up to £18,000 in a single year without penalty. For most borrowers making modest monthly overpayments, the 10% annual limit is never a concern. However, if you receive a large inheritance or bonus and wish to make a substantial lump-sum overpayment, it is worth checking your remaining allowance with your lender before doing so.
Lender Overpayment Policies (2025)
- Halifax: 10% of outstanding balance per year, penalty-free during fixed or tracker periods
- Nationwide: 10% of outstanding balance per year during fixed period; unlimited on tracker and SVR
- Barclays: 10% of original loan balance per year (note: original, not outstanding)
- HSBC: Up to 20% of the outstanding balance per year during a promotional period
- Santander: Up to 10% of balance per year on fixed deals
Always verify current policies directly with your lender before making large overpayments.
How to Calculate Mortgage Overpayment Savings
The calculation uses the standard mortgage amortisation formula. First, the regular monthly payment (M) is calculated using:
P = principal, r = monthly interest rate (annual rate ÷ 12), n = total number of monthly payments
To calculate overpayment savings, two full amortisation schedules are run: one with the standard payment only, and one with the standard payment plus the overpayment amount each month. As the balance is reduced faster in the second schedule, fewer months are needed to reach zero and less interest accrues overall.
Worked Example: £200,000 Mortgage at 4.5% Over 25 Years
Let us walk through a realistic UK example to illustrate the power of overpayments:
| Scenario | Monthly Payment | Term | Total Interest | Total Cost |
|---|---|---|---|---|
| No overpayment | £1,112/mo | 25 years | £133,482 | £333,482 |
| +£100/mo overpayment | £1,212/mo | 21 yrs 9 mo | £113,847 | £313,847 |
| +£200/mo overpayment | £1,312/mo | 20 yrs 7 mo | £109,903 | £309,903 |
| +£500/mo overpayment | £1,612/mo | 17 yrs 4 mo | £88,900 | £288,900 |
| Saving (vs £200/mo) | +£200/mo | 4 yrs 5 mo shorter | £23,579 saved | £23,579 saved |
Bank of England Base Rate Context
The Bank of England base rate currently stands at 4.75% (as of early 2025). This has a direct impact on mortgage affordability and overpayment strategy. When base rates are elevated, tracker and variable rate mortgage holders face higher monthly payments, but the case for overpaying fixed-rate mortgages is also strong, as locking in capital reduction reduces exposure to future rate increases when you remortgage.
Many analysts expect the base rate to gradually reduce through 2025 and 2026, which would typically reduce standard variable rates and tracker rates. However, fixed-rate mortgage holders should focus on their contracted rate rather than the base rate when calculating overpayment benefits.
When NOT to Overpay Your Mortgage
Consider These Priorities Before Overpaying
- Emergency fund: Ensure you have 3-6 months of expenses in accessible savings. Mortgage overpayments are not easily reversed in a financial crisis.
- High-interest debt: If you have credit card debt at 20-30% APR or personal loans at 7-15%, pay these off first. The interest cost dwarfs mortgage rates.
- Pension contributions: Employer pension matching is effectively a 50-100% instant return. Max out employer matching before overpaying your mortgage.
- ISA allowance: If you expect mortgage rates to fall significantly at remortgage time, an ISA may offer better returns.
- Offset mortgage: If your mortgage is an offset mortgage, keeping savings in your linked account achieves the same interest saving without reducing liquidity.
Early Repayment Charges (ERCs) Explained
An Early Repayment Charge (ERC) is levied when you pay off more than your lender's permitted overpayment limit during a promotional deal period (fixed, tracker or discounted rate). ERCs are typically expressed as a percentage of the amount overpaid above the limit, and they often reduce each year of the deal:
| Year of Fixed Deal | Typical ERC Rate | Example on £10,000 excess payment |
|---|---|---|
| Year 1 | 5% | £500 charge |
| Year 2 | 4% | £400 charge |
| Year 3 | 3% | £300 charge |
| Year 4 | 2% | £200 charge |
| Year 5 | 1% | £100 charge |
| After deal end (SVR) | 0% | No charge |
ERCs do not apply after your deal period ends and you move to the Standard Variable Rate (SVR), or if you have a tracker mortgage that allows unlimited overpayments. Always confirm your specific ERC terms in your mortgage offer documentation or by calling your lender.
Overpayment vs Offset Mortgage Comparison
An offset mortgage links your savings account to your mortgage, so you only pay interest on the difference between your mortgage balance and your savings. For example, a £200,000 mortgage with £30,000 in linked savings means you only pay interest on £170,000.
| Feature | Overpayment Strategy | Offset Mortgage |
|---|---|---|
| Interest saving | Yes (capital reduced) | Yes (interest calculated on net balance) |
| Access to funds | Not directly (re-mortgage required) | Yes (savings remain accessible) |
| Tax efficiency | N/A | Savings "earn" mortgage rate equivalent tax-free |
| Mortgage rate | Standard market rates | Typically 0.3-0.5% higher than standard |
| Flexibility | Limited to lender rules | Full flexibility on savings movements |
| Best for | Those with surplus income | Those with variable cash needs (self-employed) |
UK Mortgage Market Context 2025
The UK mortgage market has around 9 million outstanding residential mortgages with a total value exceeding £1.7 trillion. According to UK Finance data, approximately 1.5 million fixed-rate deals expired in 2024, with many borrowers moving from sub-2% rates to rates above 4-5%, significantly increasing monthly payments.
UK house prices, as measured by the ONS House Price Index, averaged approximately £285,000 nationally in late 2024, with London averaging above £500,000. The combination of higher prices and elevated interest rates has made overpayment strategy more relevant than at any point since 2008.
For those who fixed at lower rates in 2020-2022 and are now approaching their deal end, building up capital through overpayments now can significantly reduce the new loan-to-value (LTV) ratio at remortgage, potentially accessing better rates. A 10% LTV improvement can move a borrower from one rate band to a considerably better one.
How to Make a Mortgage Overpayment: Step by Step
- Check your overpayment allowance: Log into your lender's online portal, call their customer service line, or check your original mortgage offer document. Confirm the annual penalty-free limit (usually 10%).
- Decide on the amount: Use our calculator above to determine how much you want to overpay and what the saving will be. Consider your monthly budget and ensure you retain adequate liquidity.
- Set up a standing order: The simplest method is to set up a monthly standing order from your bank account to your mortgage account for the overpayment amount, in addition to your regular direct debit. Many lenders allow this via online banking.
- Inform your lender: Some lenders require you to designate overpayments as capital reduction (rather than advance payments of future instalments). Call or use your online account to specify this if required.
- Monitor your balance: Check your mortgage statement quarterly to confirm overpayments are being correctly applied and your balance is reducing at the expected rate.
- Annual review: At each anniversary, check the remaining term and recalculate whether increasing or decreasing overpayments makes sense given your financial situation.
Frequently Asked Questions
How much can I overpay on my mortgage?
Most UK lenders allow you to overpay up to 10% of your outstanding balance per year without incurring an Early Repayment Charge. For example, with £180,000 outstanding, you can overpay up to £18,000 per year. Some tracker and SVR mortgages allow unlimited overpayments. Always check your specific mortgage terms before making a large lump-sum overpayment.
Does overpaying mortgage affect credit score?
Overpaying your mortgage does not harm your credit score. Lenders and credit reference agencies (Experian, Equifax, TransUnion) view a reducing mortgage balance positively. Your credit file will show the balance decreasing faster than scheduled, which demonstrates responsible financial management. There is no penalty or negative impact to your credit profile from overpayments within the allowed limits.
Should I overpay mortgage or save in an ISA?
Compare the rates: if your mortgage rate (e.g. 4.5%) exceeds the after-tax return available in an ISA (e.g. 3.8% easy access), overpaying wins mathematically. However, ISA savings remain accessible for emergencies whilst mortgage overpayments are locked in. Most advisers suggest: build 3-6 months emergency fund first, then overpay if your mortgage rate exceeds available savings rates. Higher and additional rate taxpayers should factor in the tax saving on ISA interest too.
What is an early repayment charge?
An Early Repayment Charge (ERC) is a fee charged when you repay more than your lender permits during a fixed, tracker or discounted rate period. ERCs typically range from 1% to 5% of the excess repaid, decreasing by approximately 1% each year of the deal. For a 5-year fix, year one might carry a 5% ERC, falling to 1% in year five. ERCs do not apply once you are on the Standard Variable Rate. They are designed to compensate the lender for funding costs committed when they set your fixed rate.
Can I overpay a fixed-rate mortgage?
Yes. Fixed-rate mortgages almost always allow overpayments of up to 10% of the outstanding balance per year without penalty. Beyond this, ERCs apply during the fixed period. The 10% allowance resets each year, so consistent monthly overpayments of a moderate amount (typically up to a few hundred pounds per month on a standard residential mortgage) will almost always remain within the penalty-free limit. After the fixed period ends, unlimited overpayments are generally permitted.
How do I calculate mortgage overpayment savings?
To calculate savings manually: run two amortisation schedules. In the first, use your standard monthly payment M = P[r(1+r)^n]/[(1+r)^n-1]. In the second, add your overpayment to M each month, applying the extra to capital. Count the months until the balance reaches zero in each case and sum the total interest paid. The difference is your saving. Our calculator does this automatically. For a quick estimate: overpaying £200/month on a £200,000 mortgage at 4.5% over 25 years saves approximately £23,000 in interest.