When it comes to paying off your mortgage, one of the most common questions homeowners ask is: “Should I make mortgage overpayments?”
The short answer: yes — if your lender allows it (Which most do), regular mortgage overpayments can reduce your mortgage term and save you thousands in interest.
Below, we’ll explain how mortgage overpayments work, the rules most lenders set, and how even small extra payments can make a huge difference if done consistently.
What Are Mortgage Overpayments?
Mortgage overpayments are when you pay more than your standard monthly mortgage repayment.
There are two main ways to do this:
• Regular mortgage overpayments – adding a fixed amount (e.g. £50–£100) each month, which you can do by manually transferring the money each month or increasing your direct debit to do it automatically.
• Lump sum overpayments – paying off a chunk of your mortgage early (e.g. from savings, bonus, or inheritance) in one big payment maybe once or twice a year.
Most lenders allow borrowers to overpay up to 10% of the outstanding balance each year without an early repayment charge. Before making an overpayment, you should always check your mortgage terms and conditions first.
The benefits of Making Mortgage Overpayments
Making overpayments on your mortgage has three big advantages:
1. Save money on mortgage interest – Your interest is charged daily on the outstanding balance, so every extra payment reduces future interest costs.
2. Pay off your mortgage early – Overpayments shorten your mortgage term, meaning you can be mortgage-free sooner.
3. Guaranteed return on your money – Unlike savings accounts (which may pay low interest rates), mortgage overpayments give you a guaranteed saving at the same rate as your mortgage interest.
Example: How Much Can I Save With Mortgage Overpayments?
Let’s take an example:
• You have a Mortgage balance of £200,000
• With a Term of 30 years
• And an interest rate of 4.5%
• Your standard monthly repayment is £1,013
By overpaying £50 per month, you would…
• Have your Mortgage repaid 2 years and 4 months earlier
• And save around £15,000 in mortgage interest
If you were to overpay by £100 per month, you would…
• Have your Mortgage repaid 4 years and 5 months earlier
• And save around £28,000 in mortgage interest
These figures show how even small monthly overpayments can make a huge difference.
Things to Check Before Making Mortgage Overpayments
Before setting up mortgage overpayments, make sure you:
• Check your lender’s overpayment rules – Many lenders allow up to 10% of your balance per year without penalty.
• Keep an emergency fund – Don’t tie up all your money in your mortgage. Keep savings aside for unexpected bills.
• Compare savings rates vs mortgage rates – If your mortgage interest rate is higher than your savings account, overpayments usually make sense. Alternatively, if you have other investments you can access which will return a higher interest rate that the interest you would save by overpaying on your mortgage it would be wiser to put your money into that higher returning investment.
Are Mortgage Overpayments Right for You?
Making mortgage overpayments is one of the best ways to pay off your mortgage early and save thousands of pounds in interest. Whether it’s £20, £50 or £100 a month, every little extra helps — and brings you closer to being mortgage-free.
Want a personalised mortgage overpayment calculation? Contact Green & Green Mortgages in Hull today and we’ll show you exactly how much you could save.
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