Overpaying your mortgage
How overpaying saves interest and clears the loan sooner, the annual allowance, the charges to watch, and when to do it.
Overpaying means paying more than your required monthly payment, either a bit extra each month, a one-off lump sum, or both. Because interest is charged on what you still owe, paying the balance down faster means less interest overall and a mortgage cleared sooner. On a typical loan, even a modest overpayment can save thousands of pounds.
The short version
- Overpaying reduces your balance faster, so you pay less interest and finish earlier.
- You usually choose the result: shorten the term and keep the payment, or keep the term and cut the payment.
- Many lenders let you overpay up to about 10% of the balance a year with no charge. Go over that during a deal and you may face an early repayment charge.
- It is not always the best move. Keep an emergency fund, clear pricier debt first, then weigh overpaying against saving. Every figure here is an estimate to plan with, not financial advice.
The key facts at a glance:
| Choice | What it does |
|---|---|
| Shorten the term | Keep the same monthly payment, finish earlier, save the most interest |
| Cut the payment | Keep the same term, lower the monthly cost, free up cash now |
| 10% allowance | Roughly how much most lenders let you overpay a year with no charge |
| Early repayment charge | A fee for going over the allowance in a deal, often tapering, say 5% down to 1% |
How overpaying saves interest
A repayment mortgage charges interest on the balance you still owe, worked out daily by most lenders. When you overpay, the extra goes straight onto that balance, so the next day there is less to charge interest on. That smaller balance then earns less interest the day after, and so on. The saving compounds, which is why a small overpayment early on does more than the same amount near the end.
Take a £200,000 balance at 4.5% over 25 years. The normal payment is around £1,112 a month. Add £100 a month on top and you save roughly £21,000 in interest and clear the mortgage about three and a half years early. Those are estimates, and the exact saving moves with your rate, balance and term, but the shape holds: a steady overpayment quietly takes years off the loan. You can put your own numbers into the mortgage overpayment calculator to see the saving for your mortgage.
Shorten the term or cut the payment
When you overpay, the money has to do one of two things, and you usually get to pick which.
- Shorten the term. You keep paying the same amount each month, and the mortgage is cleared sooner. This saves the most interest, because you are paying the loan off faster for longer.
- Cut the monthly payment. You keep the original end date but pay a little less each month from now on. You still save some interest, just less than shortening the term, and you free up cash in your monthly budget.
Many lenders default to shortening the term when you make a regular overpayment, so if you want the lower payment instead you often have to ask for it. Most people who overpay are trying to save interest and be mortgage-free sooner, so shortening the term tends to fit. If money is tighter month to month, the lower payment can be the sensible choice. To see how the term and the monthly figure interact in the first place, our guide to how mortgage repayments work walks through what sits inside each payment.
The 10% allowance and ERCs
Most mortgages come with an overpayment allowance. This is the amount you can overpay in a year without being charged, and for many lenders it is about 10% of the balance you owe. So on a £200,000 balance, roughly £20,000 of overpayments in the year would usually be fine. The exact percentage, and the date your allowance year resets, are set by your own deal, so check your paperwork or ask your lender before making a large overpayment.
If you overpay more than the allowance while you are on a fixed or other deal, the lender can apply an early repayment charge (ERC). An ERC is a fee, usually a percentage of the amount you repay over the limit, and it often tapers over the length of the deal, for example 5% in the first year falling towards 1% in the last. Allowances that are not used in a year usually do not carry over to the next. Once your deal period ends, there is normally no ERC, so many people who want to clear a big chunk wait for the deal to finish or time it around the allowance reset.
When not to overpay
Overpaying is a good habit, but it is not always the best home for spare money. A sensible order for most people is this:
- Keep an emergency fund. Three to six months of essential outgoings in easy-access savings. Money put onto the mortgage is hard to get back, so do not overpay yourself short of cash.
- Clear higher-interest debt first. Credit cards and other short-term borrowing usually charge far more than a mortgage, so paying those off saves more than overpaying the mortgage would.
- Compare your mortgage rate with what savings could earn. If a savings account pays you more than your mortgage rate costs, saving can win, because your money grows faster than the interest you would avoid. If the mortgage rate is higher, overpaying tends to come out ahead.
Pensions and other tax-efficient savings can also change the maths, and whether overpaying suits you depends on your own plans. None of this is a reason you must overpay or must not. It is about putting each pound where it does the most good for you.
Lump sum vs a bit each month
Both work, and you can do both. A regular monthly overpayment is steady and easy to budget for, and because it starts straight away it chips at the balance month after month. A one-off lump sum, perhaps from a bonus or some savings, takes a bigger bite out of the balance in one go, which means it saves interest from that day on.
Lump sums are the most likely to bump into the allowance, so a large one during a deal period is where an ERC can creep in. Check the allowance first and, if a lump sum would tip you over, you might split it across two allowance years or wait for the deal to end. Overpaying also lowers how much you owe as a share of your home's value, which can help when you next remortgage; our guide to loan-to-value explains why those bands matter for the rate you are offered. If you are weighing up the basic monthly cost in the first place, the mortgage repayment calculator gives you that figure.
Common questions
- How much will I save by overpaying my mortgage?
- It depends on your balance, rate, term and how much extra you pay, but the effect is usually bigger than people expect. On a £200,000 balance at 4.5% over 25 years, overpaying by £100 a month saves roughly £21,000 in interest and clears the mortgage about three and a half years early. Those are estimates: put your own numbers into the overpayment calculator to see your figures.
- Should I overpay my mortgage?
- It can be a smart move, but it is not always the best one. A sensible order for most people is to keep an emergency fund of three to six months' essential spending, clear higher-interest debt like credit cards first, then compare your mortgage rate with what your savings could earn. If the mortgage costs more than savings pay, overpaying usually wins; if savings pay more, saving or investing can. Check your lender's overpayment allowance before paying in a large amount.
- Is it better to overpay or put the spare money into savings?
- Compare the two rates. If your savings account pays more than your mortgage rate costs, saving can win, because your money earns more than the interest you would avoid. If your mortgage rate is higher, overpaying usually comes out ahead. Either way, keep an emergency fund and clear higher-interest debt such as credit cards first, since those cost far more than a mortgage.
- What is the 10% overpayment allowance?
- Many lenders let you overpay up to about 10% of your outstanding balance each year without any charge, while you are on a fixed or other deal. That figure is the overpayment allowance. The exact percentage and the date the year resets are set by your own deal, so check your paperwork or ask your lender before you overpay a large amount.
- What is an early repayment charge?
- An early repayment charge (ERC) is a fee a lender can apply if you repay more than your allowance during a deal period, or pay the whole mortgage off early. It is usually a percentage of the amount you repay and often tapers over the deal, for example from 5% in the first year down to 1% in the last. Once the deal ends, there is usually no ERC.
- Does overpaying lower my monthly payment?
- Only if you ask for it. By default many lenders keep your payment the same and shorten the term, so you finish earlier. If you would rather keep the term and reduce the monthly payment, you usually have to request that. Shortening the term saves more interest overall; lowering the payment frees up cash each month.
- Can I get overpayments back if I need the money?
- Usually not on a standard mortgage: once you have overpaid, that money has reduced your balance and you cannot simply withdraw it. Some flexible and offset mortgages do let you draw overpayments back, but most do not. That is one reason to keep an emergency fund rather than putting every spare pound onto the mortgage.
About this article
Written by the calcd team. We build UK money calculators and explain the numbers behind them in plain English. We checked the overpayment allowance and early repayment charge points in this article against MoneyHelper and UK lenders. The worked example was run through the same overpayment maths our calculator uses. The figures here are estimates to help you plan, not financial advice. Your own allowance, charges and the best use of spare money depend on your deal and your circumstances, so confirm the terms with your lender. Last updated June 2026.