Mortgage debt can be intimidating when taken over a longer term. 25-30 years can feel like forever, especially as the loan balance reduces fairly slowly in the first years of repayment. The good news is, the vast majority of mortgages allow overpayments, which can help you become mortgage-free more quickly.
What are mortgage overpayments?
A mortgage overpayment is any additional amount paid towards your mortgage above the minimum monthly repayment figure. Overpayments go directly to repaying the capital mortgage balance. So, as mortgage interest is calculated on your outstanding balance, reducing it results in less interest accumulating.
For example: Overpaying £100 a month on a £200k mortgage at 5.5% could save you over £28,000 in interest
If you make regular overpayments, you can choose to either reduce your monthly repayment and keep the term length the same, or shorten the repayment term. Monthly overpayments could potentially result in repaying your mortgage years earlier than originally agreed.
You can use our calculator below to see the interest savings you could make by overpaying your mortgage, and how many years this could potentially knock off your mortgage term.
How our mortgage overpayments calculator works
When it comes to making overpayments, you can choose to make a single lump sum overpayment, or a regular monthly overpayment. In some cases you may even choose to do both.
Our calculator allows you to choose either or both of these options, as well as enabling you to compare different regular overpayment frequencies (monthly, quarterly or annually).
Simply enter the following information:
-
Current Mortgage balance - You can find this on your most recent mortgage statement
-
Remaining mortgage term - enter how many years remaining to the closest year
-
Repayment type - choose whether your mortgage is capital repayment or interest-only
-
Interest rate - This defaults to 5.5% but can be set to reflect your individual rate
-
Single overpayment* - Complete this if you want to make a single lump sum payment, or leave blank if you only want to overpay a regular monthly amount
-
Regular overpayment* - Enter the amount you wish to overpay by each month, quarter or year
-
Frequency - Select your preferred regular overpayment frequency
*Please note: either or both of these fields can be completed together. However, keep in mind any maximum overpayment limits imposed by your lender
The calculator will then provide you with the following information:
-
Current monthly repayment - How much you currently pay, based on your existing term length, interest rate and outstanding loan amount
-
New monthly repayment - How much you would repay per month once your overpayments have been accounted for
-
Interest saving - This shows the total amount of interest you would save over your current mortgage term if you maintain the overpayments you input
-
Potential term reduction - This shows how much more quickly you could repay your loan in years and months should you choose to use your overpayments to do so - This typically only applies to capital repayment mortgages
Please note: These calculations assume that your interest-rate remains the same over the duration of your mortgage and cannot account for future remortgages onto different rates
Begin your mortgage journey
How much can you overpay by?
The amount you can overpay depends on the type of mortgage you have, and your lender’s individual rules.
- Standard Variable Rate (SVR) mortgage - There are no overpayment limits, you can overpay as much as you want to, whenever you want to
- Tracker mortgage- Usually have no overpayment limits, however, this does not apply to all tracker deals, so be sure to check with your lender
- Fixed-rate mortgage - Most lenders have a maximum annual overpayment limit of 10%, although some products vary. This means that if you were to repay more than your lender’s limit, you would be charged early repayment charges (ERCs) on any amount over the limit. For example, if you repay 12% when your limit is 10%, you would be charged ERCs on 2% of the overpayment
If you’re on a fixed rate deal, it’s best to stay within your lender’s repayment limits, as ERCs could render your overpayment pointless. If you have a large sum to overpay, perhaps due to an inheritance, for example, it might be best to wait until your deal ends and you fall onto the lender’s SVR.
Top tip: While overpaying can be hugely beneficial, it’s important not to dip into any emergency funds to cover your overpayment. Unlike a savings account, you usually cannot withdraw an overpayment if your boiler breaks, for example.
Do all mortgage lenders allow overpayments?
All lenders allow for unlimited overpayments on SVR mortgages, however, if you’re on any type of fixed-term deal, it’s always best to check the policy around overpayments. The table below shows the overpayment policies on fixed-rate mortgage deals for some of the top UK lenders:
UK Lender Overpayment Policies
|
Lender |
Overpayment Allowed? |
Overpayment Policy |
|
Yes |
10% of the outstanding balance per calendar year Jan 1st – Dec 31st |
|
|
Yes |
20% of the outstanding balance per 12-month period (resets on the anniversary of your mortgage start date) |
|
|
Yes |
10% of the outstanding balance per 12-month period (resets on the anniversary of your fixed rate start date or drawdown) |
|
|
Yes |
10% of the outstanding balance per annum. (Increased to 25% for Barclays Premier customers) |
|
|
Yes |
10% of the mortgage balance as at 1st January each year |
|
|
Yes |
10% of the outstanding balance per calendar year |
|
|
Yes |
10% of the amount owed as at 1st January each year |
|
|
Yes |
Unlimited overpayments are allowed on most fixed-rate mortgages, provided you do not pay off the mortgage in full (which triggers an Early Repayment Charge) |
|
|
Yes |
10% of the outstanding balance per year |
|
|
Yes |
20% of the outstanding balance per 12-month period (resets on the anniversary of your mortgage start date) |
|
|
Yes |
10% of the outstanding balance per year (allowance resets annually based on the anniversary of the drawdown) |
Benefits of making mortgage overpayments
Depending on the type of mortgage you have, there are multiple potential benefits to overpaying your mortgages.
-
Interest savings: In some cases, even small overpayments of around £50 per month can save thousands of pounds in interest over the whole term
-
Term reduction: You could reduce the length of your mortgage term considerably if you choose to use your interest savings in this way
-
Faster increase in equity (Lower LTV): As your overpayments go directly towards your capital balance, you’ll own a greater percentage of your home more quickly by overpaying. This provides more protection from falling into negative equity, especially if you started your mortgage on a high loan to value (LTV)
-
Access to better remortgage rates: By increasing your equity and reducing the LTV of your borrowing, you in turn become eligible for better mortgage rates, which can save you even more if you choose to remortgage
Get independent mortgage advice today
Overpayments can be a great way to shorten your mortgage term while saving thousands of pounds, but won’t necessarily be the right choice for everyone. If you’re struggling to decide how to make best use of your money, whether it’s how frequently you make repayments, or whether you’d be best paying your spare cash into a savings or pension account, independent financial advice is the best way forward.
At Money Helpdesk we have plenty of IFAs with expertise in mortgages, pensions, savings and investments. Whether you can afford a small monthly overpayment or are looking to pay off a multi-thousand pound lump-sum, we’ll help ensure you’re reaping the greatest benefits for your choices.
Simply get started to speak to an expert today.
FAQs
Yes, most lenders will allow this, although it’s always best to check with your own provider. However, keep in mind that you won’t usually have the option to reduce your term, but can still save on your monthly interest.