Mortgage Overpayments: How Much Interest Can You Save?
Making extra payments towards a repayment mortgage can reduce both the amount of interest you pay and the time it takes to clear the mortgage.
The effect can be larger than it first appears because an overpayment reduces the outstanding balance. That means future interest is calculated on a smaller amount.
This guide uses worked examples to show what £50, £100, £200 and £300 monthly overpayments can do.
Start with your mortgage payment
Use your own mortgage balance, interest rate and term to estimate the standard monthly repayment before considering overpayments.
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The short answer
Mortgage overpayments can save interest because they reduce the balance earlier.
The earlier the balance falls, the less interest is charged in later months.
Even relatively small regular overpayments can make a meaningful difference over a long mortgage term.
Example: £250,000 mortgage over 25 years at 5%
To illustrate the effect of regular overpayments, consider:
Mortgage balance:
£250,000
Mortgage term:
25 years
Illustrative interest rate:
5%
Standard monthly repayment:
approximately £1,461.48
With no overpayments, the total interest paid over 25 years would be approximately:
£188,442.53
The 5% rate is used purely as a worked example and is not presented as a current mortgage-market rate.
What difference could monthly overpayments make?
| Monthly Overpayment | Approx Mortgage Term | Time Saved | Approx Total Interest | Approx Interest Saved |
|---|---|---|---|---|
| £0 | 25 years | — | £188,442.53 | — |
| £50 | 23 years 6 months | 1 year 6 months | £174,766.56 | £13,675.97 |
| £100 | 22 years 1 month | 2 years 11 months | £163,060.62 | £25,381.91 |
| £200 | 19 years 10 months | 5 years 2 months | £144,010.67 | £44,431.86 |
| £300 | 18 years | 7 years | £129,120.06 | £59,322.47 |
These figures assume the 5% interest rate remains unchanged for the full mortgage term and that every overpayment is applied directly to the outstanding capital.
Real mortgages may have changing interest rates, different payment rules and lender-specific overpayment conditions.
What happens if you overpay by £100 a month?
In this example, the normal monthly mortgage repayment is approximately £1,461.48.
Adding a £100 monthly overpayment means paying approximately:
£1,561.48 per month
Instead of taking 25 years to repay the mortgage, the balance would be cleared in approximately:
22 years 1 month
That is around:
2 years 11 months earlier
Estimated total interest falls from approximately:
£188,442.53
to:
£163,060.62
Estimated interest saving:
£25,381.91
Why do mortgage overpayments save interest?
Mortgage interest is normally calculated from the outstanding mortgage balance.
When you make an overpayment, part of the balance disappears earlier than it otherwise would.
That creates two benefits:
• you owe less money
• future interest is calculated on a smaller balance
The saving therefore compounds over time.
Why earlier overpayments can have a bigger effect
An overpayment made near the beginning of a long mortgage term has more time to reduce future interest.
For example, reducing the balance today can affect interest calculations for many years afterwards.
The same overpayment made close to the end of the mortgage has less time to generate interest savings.
Do one-off mortgage overpayments help?
Yes.
Regular monthly overpayments are not the only option.
A lump-sum payment can also reduce the outstanding balance and therefore reduce future interest.
Examples could include using:
• a bonus
• an inheritance
• surplus savings
• proceeds from selling an asset
Before making a large payment, check the lender’s overpayment rules and any early repayment charges.
Check your mortgage overpayment allowance
Mortgage agreements can place limits on how much can be overpaid without charges.
The rules depend on the lender and mortgage product.
Some mortgages permit a certain amount of overpayment each year, while others may charge an early repayment charge during part of the deal.
Always check the terms of your own mortgage before making substantial overpayments.
Should you overpay your mortgage or save the money?
There is no universal answer.
Mortgage overpayments provide a guaranteed reduction in mortgage interest based on your mortgage rate.
Saving or investing may produce a different return, but can also offer greater access to your money.
Factors to consider include:
• your mortgage interest rate
• savings interest rates
• access to emergency savings
• pension contributions
• other debts
• early repayment charges
• whether you need the money to remain accessible
Mortgage overpayments reduce debt but also reduce the amount of cash you have available.
Keep emergency savings in mind
Before committing spare cash to mortgage overpayments, consider whether you have enough accessible savings for unexpected costs.
Money paid into a mortgage may not be easy to withdraw again.
A household may therefore prefer to keep some cash available before making aggressive overpayments.
Do overpayments save more when mortgage rates are higher?
In general, reducing a mortgage balance saves interest at the rate that would otherwise have been charged on that balance.
That means the potential interest saving from an overpayment is usually larger when the mortgage interest rate is higher.
However, actual savings depend on the remaining balance, term, future rate changes and timing of the overpayments.
Mortgage Overpayment FAQs
Is it worth overpaying a mortgage by £100 a month?
It can make a significant difference over a long mortgage term. In the £250,000, 25-year, 5% illustrative example in this guide, a £100 monthly overpayment reduces the mortgage term by approximately 2 years 11 months and saves about £25,382 in interest.
Does an overpayment reduce the mortgage balance?
Yes. When an overpayment is applied to the capital balance, the amount owed reduces earlier than it would under the normal repayment schedule.
Is it better to make monthly or lump-sum overpayments?
Both can reduce interest. The exact result depends on the timing and amount of each payment. Earlier reductions in the balance generally have more time to reduce future interest.
Can I overpay as much as I want?
Not necessarily. Mortgage products can have overpayment limits or early repayment charges. Check the terms of your own mortgage.
Should I use all my savings to overpay my mortgage?
Not automatically. Consider emergency savings, other debts, pensions, liquidity and your wider financial circumstances before committing cash to the mortgage.
Will my mortgage payment fall if I overpay?
That depends on how the lender treats overpayments. Some lenders may keep the payment unchanged and shorten the term, while others may recalculate payments. Check with your lender.
Sources and methodology
The worked example assumes:
• £250,000 starting mortgage balance
• 25-year repayment term
• 5% annual interest
• monthly repayments
• unchanged interest rate for the full term
• regular monthly overpayments
• no fees
• no early repayment charges
The 5% interest rate is an illustrative assumption rather than a statement about current mortgage rates.
Figures are rounded and should be treated as illustrative estimates rather than financial advice.