Overpaying or a shorter term: what is the difference?
If the same money goes in every month, the arithmetic is identical: a 25-year mortgage with a regular overpayment ends on the same day, with the same interest, as a 20-year term paying the higher amount. The difference is the commitment. A shorter term makes the higher payment compulsory; an overpayment can be stopped.
The arithmetic, side by side
Take £200,000 at 5%. Over 25 years the payment is about £1,169 a month and the interest over the whole term comes to about £150,750. Over 20 years the payment is about £1,320 and the interest about £116,780.
Now keep the 25-year term and pay £151 a month extra. The mortgage ends after 20 years, and the interest is the same £116,780. The same money reaches the same balance on the same dates, and a lender does not charge interest differently on a pound because it was voluntary.
Where the two differ
- What you are committed to. On the shorter term, £1,320 is the contractual payment, and paying less is a missed payment. On the longer term, the contractual payment is £1,169 and the £151 is yours to stop.
- The allowance. A contractual payment never counts against an overpayment allowance. On a deal with a cap, £151 a month uses £1,812 of the year's allowance.
- What the lender assesses. A lender checks the contractual payment is affordable, so a shorter term means being assessed on the higher figure.
- How the extra is applied. The overpayment only matches the shorter term if your lender applies it to the term. If it lowers the payment instead, the date does not move — see does overpaying reduce the term or the payment.
Neither is the right answer in general. Whether a lower compulsory payment or a structure that does not rely on a voluntary habit matters more is a question about your household, and not one we answer for anyone.
The mortgage overpayment calculator shows the date and the interest for your own balance, rate and overpayment.
Questions people ask
Does overpaying save the same interest as a shorter mortgage term?
If the overpayment is the difference between the two payments and is made every month, yes: the balance falls on the same schedule, so the interest is the same. Stop overpaying and the longer term simply carries on.
Can I change my mortgage term later?
A term can be changed during a mortgage if your lender agrees, usually after checking the new payment is affordable. It is a change to your existing contract, arranged with your lender.