Can you overpay a fixed-rate mortgage?
Usually, yes. Fixed-rate deals commonly allow overpayments up to an annual allowance with no charge, and charge a percentage only on the amount above it. The allowance, what it is a percentage of and when its year starts are all set out in your mortgage offer.
Within the allowance
Overpayments inside the allowance carry no charge, whether made monthly or as a lump sum. They reduce the balance like any other payment, and whether they shorten the term or lower the payment depends on your lender's arrangement.
Above the allowance
The part above the allowance is charged at the early repayment charge in force on the day it is paid. With a £20,000 allowance and a 2% charge, a £26,000 overpayment costs 2% of £6,000: £120.
What catches people out
- The year. The allowance runs on a calendar year or from the mortgage anniversary, and unused allowance usually does not carry over.
- Regular overpayments add up. £300 a month is £3,600 of the year's allowance.
- The basis. 10% of the original loan and 10% of today's balance are different figures — see what an overpayment allowance is a percentage of.
- The end of the fixed period. Once the charge period ends, the allowance stops limiting anything, because there is no charge left to avoid.
The early repayment charge calculator works out how much allowance is left this year and what an overpayment above it would cost.
Questions people ask
Do overpayments on a fixed rate reduce my monthly payment?
That depends on your lender's arrangement rather than the rate type. Some reduce the term and keep the payment the same; others recalculate the payment. Your lender can say which applies.
Can I overpay a fixed-rate mortgage without a penalty?
Up to the allowance in your mortgage offer, yes. Above it, an early repayment charge applies to the excess for as long as the charge period lasts.