How much interest does overpaying a mortgage save?
It depends on the balance, the rate, the time left and how early the money goes in. On £200,000 at 5% over 25 years, £100 a month extra saves about £24,500 of interest and ends the mortgage 3 years 6 months sooner; £200 a month saves about £41,800 and 6 years 2 months.
The figures below assume interest is charged monthly, overpayments are applied to the term, and the rate stays at 5% throughout, which a real mortgage rarely does for 25 years. They show the shape of the saving, not a forecast.
Regular overpayments
A £200,000 repayment mortgage at 5% over 25 years costs about £1,169 a month and about £150,750 in interest over the term.
- £100 a month extra: about £24,500 less interest, and the mortgage ends 3 years 6 months sooner.
- £200 a month: about £41,800 less, 6 years 2 months sooner.
- £500 a month: about £73,100 less, 11 years 1 month sooner.
The saving does not grow in proportion. £500 a month saves about three times what £100 does, not five times, because the faster the balance goes the fewer months are left in which to save interest.
When the money goes in
A single £10,000 overpaid on the same mortgage saves a very different amount depending on when it is paid:
- in the first month: about £22,800 of interest, and 2 years 4 months off the term;
- after ten years: about £10,400, and 1 year 5 months;
- after twenty years: about £2,600, and 10 months.
Every pound off the balance stops interest on that pound for every month that remains, so the same money does most when the most months are left.
What the saving is not
- Not money back. It is interest you do not pay in future, most of it years from now.
- Not free of limits. On a fixed or discounted deal, overpaying above the allowance can carry a charge — see how an early repayment charge is worked out.
- Not easily reversed. Money overpaid generally cannot be taken back out, unless the mortgage has a borrow-back feature.
The mortgage overpayment calculator works the saving out from your own balance, rate and term.
Questions people ask
What does overpaying a mortgage by £100 a month do?
On £200,000 at 5% over 25 years, it saves about £24,500 of interest and ends the mortgage 3 years 6 months sooner, if the rate stays the same and the overpayments reduce the term. A different balance, rate or term gives a different figure.
Does overpaying early save more interest?
Yes. The earlier an overpayment is made, the more months it spends reducing the balance that interest is charged on. £10,000 in the first month of a 25-year mortgage at 5% saves about £22,800; the same £10,000 after twenty years saves about £2,600.
More guides
- When does the overpayment allowance reset?
- Overpaying the mortgage or saving: what the sums compare
- Lump sum or monthly overpayments: what is the difference?
- What is an overpayment allowance a percentage of?
- Does overpaying reduce the term or the monthly payment?
- How much should my mortgage balance go down each year?