How Overpayments Work When you make an overpayment, the extra money goes directly towards reducing your outstanding balance. This reduces the amount of interest that accrues each month. On a £200,000 repayment mortgage at 4.5% over 25 years, overpaying by just £200 per month from the start saves over £25,000 in interest and reduces the term by around five years. The benefit compounds over time because every early payment reduces the balance on which future interest is calculated.

Checking Your Early Repayment Charge Before you start overpaying, check your mortgage terms. Most residential mortgage lenders allow overpayments of up to 10% of your outstanding balance each year without charge, but the allowance resets annually and varies by lender. If you overpay beyond this limit, an early repayment charge typically applies, ranging from 1% to 5% of the excess amount. Your mortgage offer or annual statement will confirm your allowance.

Lump Sum vs Regular Overpayments You can overpay as a lump sum, as a regular monthly addition to your payment, or both. Lump sum payments are useful when you receive a bonus or inherit money. Regular monthly overpayments are easier to budget for and more consistent. Some people overpay for a set period and then reduce back to their standard payment if circumstances change. Either approach works, and the calculator handles both scenarios.