Is it worth overpaying your mortgage?
Overpaying can cut interest and shorten a repayment mortgage. Check your lender’s overpayment allowance and any charges, keep enough cash for emergencies and compare what the money could earn in accessible savings.
In the episode’s illustration, paying £100 extra every month on a £200,000 repayment mortgage at a constant 5% with 25 years left saves about £24,500 in interest and brings the final payment forward by 42 months. It assumes the normal payment stays the same, the extra payments continue until payoff and there are no fees or rate changes. Use the calculator above to test your own figures.
Watch on YouTube: Is it worth overpaying your mortgage?
Should I overpay my mortgage or invest?
Overpaying reduces your mortgage balance and the interest charged on it. Investing can produce a higher return over a long period, but your investments can fall in value. Compare over the same timeframe and allow for charges, taxes and the risk that you need the money sooner than planned.
- Overpay: Use this calculator to estimate the interest avoided. Check your lender’s overpayment allowance, early repayment charges and whether you can access money you’ve already overpaid.
- Save: If you may need the money sooner, compare accessible savings after any tax with the Mortgage Overpayment vs Savings Calculator.
- Invest: Consider how long you can leave the money invested and whether you could afford a loss. See our UK beginner’s investing guide.
Check your emergency cash and any more expensive debt first. See MoneyHelper’s early mortgage repayment guide.
How much interest could a mortgage overpayment save?
Use this UK mortgage overpayment calculator to compare your existing repayment schedule with a regular extra monthly payment. Enter your current mortgage balance, annual interest rate, remaining term and planned overpayment. The results illustrate the possible reduction in interest and the time to repay, assuming the rate and normal payment stay constant.
Does overpaying reduce my mortgage term or monthly payment?
That depends on your lender. This calculator illustrates a shorter repayment term while keeping the normal monthly payment unchanged. Some lenders instead recalculate the required monthly payment, so check how yours applies extra payments before acting.
For a separate choice between keeping money accessible and paying down your mortgage, use the Mortgage Overpayment vs Savings Calculator. If you do not have an emergency buffer, read how to build an emergency fund first. Check early repayment charges and annual overpayment allowances with your lender.