Breakdown
How it works
Every overpayment goes straight to the balance, so you stop paying interest on that amount for the rest of the term. Keeping your contractual payment the same while overpaying shortens the term — that is where the saving comes from. Most lenders allow 10% of the balance per year penalty-free during a fixed deal and unlimited overpayments on a variable rate.
Formula
Worked example
Balance 220,000 at 4.5% with 20 years left: payment 1,392. Overpaying 200 a month saves about 27,000 interest and clears the loan 3 years 4 months early.
Frequently asked questions
Is it better to overpay or save?
Compare your mortgage rate with the after-tax savings rate. At 4.5% mortgage vs 4% savings (taxable), overpaying wins unless you need the cash accessible or have higher-interest debt.
Will my monthly payment go down?
Only if you ask the lender to recalculate. By default most keep the payment and shorten the term, which saves more interest. Reducing the payment instead improves monthly cash flow.
Is there an early repayment charge?
During a fixed or discounted deal, overpaying more than the allowance (usually 10% a year) triggers a charge of 1–5% of the excess. Lump sums are best timed after the deal ends.
Should I overpay before or after a remortgage?
Overpaying just before remortgaging can drop you into a lower LTV band and get a cheaper rate, compounding the saving.