What overpaying a mortgage actually saves
An overpayment reduces the balance immediately, so every month afterwards is charged less interest. The saving compounds, which is why early overpayments are worth far more than late ones.
What this calculator does
- Shows how much sooner the mortgage clears if you overpay monthly, as a lump sum, or both.
- Quantifies the interest saved over the remaining term.
- Reports the new payoff period in months.
How the calculation works
Interest is charged on the balance outstanding, so anything that reduces the balance reduces every interest charge that follows. An overpayment therefore does two things at once: it removes capital, and it removes all the future interest that capital would have attracted. The saving compounds, which is why the timing matters enormously — an overpayment made in year two avoids far more interest than the same amount in year eighteen, because it has more remaining months to work across. The calculator runs the amortisation twice, once with the contractual payment and once with your overpayments applied, and compares the two. Holding the monthly payment level while the balance falls faster is what shortens the term: the alternative, asking your lender to reduce the payment instead, keeps the term the same and saves considerably less.
The rule
Run the amortisation with (contractual payment + overpayment) each month, applying any lump sum in the month given, until the balance reaches zero. Interest saved is the original total interest less the new total.
Step by step
- Work out the contractual monthly payment for the balance, rate and remaining term.
- Add the regular overpayment to each month's payment.
- Apply any lump sum in the month specified.
- Continue until the balance clears, counting the months taken.
- Compare total interest against the original schedule.
Worked example
A £200,000 balance at 4.5% with 20 years left, overpaying £200 a month.
What was entered
| Current mortgage balance | £200,000 |
|---|---|
| Current interest rate | 4.5% |
| Remaining mortgage term | 20 years |
| Regular monthly overpayment | £200 |
| One-off lump sum overpayment | £0 |
The arithmetic
- The contractual term is 240 months.
- Adding £200 a month clears the balance in 192 months instead.
- That is 48 months — four years — off the mortgage.
- Interest over the shortened schedule is £80,735.45.
- Compared with the original schedule that is £22,936.25 of interest avoided.
- The total overpaid is £200 × 192 = £38,400, so roughly 60p of interest was saved for every extra pound paid in.
What the calculator returns
| New payoff period (months) | 192 |
|---|---|
| Months saved | 48 |
| Interest saved | £22,936.25 |
| Interest over the new schedule | £80,735.45 |
Key assumptions
- The interest rate stays the same for the whole remaining term.
- Overpayments are applied to the balance in the month they are made.
- The contractual monthly payment is held level, so the benefit is taken as a shorter term.
Limitations
- Most fixed-rate deals cap penalty-free overpayments, commonly at 10% of the balance a year. Exceeding the cap triggers an early repayment charge, which this calculator does not model — check your own deal before acting.
- Some lenders apply overpayments only at the year end, or only once they exceed a minimum, which reduces the benefit.
- Asking the lender to reduce your monthly payment instead of shortening the term saves considerably less interest.
- Whether overpaying beats saving or investing the same money depends on rates, tax and your circumstances, and is not an arithmetic question.
- Clearing higher-interest debt, or keeping an accessible emergency fund, is usually the better first call.
Common questions
Is there a limit on how much I can overpay?
Should I shorten the term or reduce the payment?
Does it matter when in the term I overpay?
Is overpaying better than saving the money?
Related calculators
- Mortgage Amortisation Calculator — See where the balance would otherwise have been at any point.
- UK Mortgage Calculator — Compare against the original schedule and total interest.
- Credit Card Calculator — Clearing expensive card debt usually beats overpaying a mortgage.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Should you pay off your mortgage early? — MoneyHelperOverpayment limits, early repayment charges and the trade-offs
- MCOB 11.6: Responsible lending, and responsible financing of home purchase plans — Financial Conduct AuthorityMCOB 11.6.18R: lenders must consider likely interest rates over at least five years and must assume a rise of at least 1% over that period, unless the rate is fixed for five years or more