Mortgage Overpayment Guide UK 2025

Understand how mortgage overpayments work, how much you could save, and the rules you need to know before paying extra off your mortgage.

What Is a Mortgage Overpayment?

A mortgage overpayment is any payment you make above your required monthly mortgage amount. Overpayments go directly towards reducing your outstanding mortgage balance, which means:

  • You pay less interest over the life of the mortgage
  • You could pay off your mortgage years earlier
  • Each subsequent monthly payment has a greater proportion going towards capital repayment
Key principle: Because mortgage interest is calculated on the outstanding balance, even small regular overpayments can have a significant compound effect over 25-30 years.

How Much Could You Save?

The savings from overpayments depend on your mortgage size, interest rate, and how much extra you pay. Here are some examples:

Mortgage Monthly Overpayment Interest Saved Years Saved
GBP 200,000 @ 4.5%, 25yrGBP 100/month~GBP 22,000~3.5 years
GBP 200,000 @ 4.5%, 25yrGBP 200/month~GBP 38,000~6 years
GBP 200,000 @ 4.5%, 25yrGBP 500/month~GBP 67,000~11 years
GBP 300,000 @ 5.0%, 30yrGBP 200/month~GBP 72,000~7 years
GBP 300,000 @ 5.0%, 30yrGBP 500/month~GBP 130,000~13 years

Approximate figures for illustration. Use our calculator for personalised projections.

The 10% Rule: Understanding Overpayment Limits

Most UK fixed-rate mortgages allow you to overpay up to 10% of the outstanding balance per year without incurring early repayment charges (ERCs). Here is what you need to know:

Fixed Rate Mortgages

  • Usually limited to 10% pa overpayment
  • ERCs typically 1-5% of the amount over the limit
  • The 10% resets each year (anniversary of the mortgage)
  • Some lenders allow 20% or offer no limit

Variable Rate / Tracker / SVR

  • Often allow unlimited overpayments
  • Usually no ERCs on variable products
  • Check your specific terms to be sure
  • Discounted variable may still have limits
Always check your mortgage terms. The 10% rule is common but not universal. Your mortgage offer document will specify your exact overpayment allowance and any charges for exceeding it.

Methods of Overpaying

1. Regular Monthly Overpayments

Increase your standing order to pay more each month. Most lenders allow you to set a higher regular payment. This is the simplest and most consistent approach.

2. Lump Sum Overpayments

Make one-off payments when you have extra money (bonus, inheritance, tax refund). Contact your lender to make a lump sum payment. This can have a dramatic impact on your balance.

3. Reduce the Term, Not the Payment

When remortgaging, keep your monthly payment the same but choose a shorter term. If you can already afford your current payment, this effectively locks in overpayments without requiring discipline.

Overpayment vs Other Strategies

Strategy Pros Cons
Overpayment Simple, guaranteed return, reduces balance permanently Money locked in (some lenders allow borrowback), 10% limit on fixed
Offset Mortgage Savings remain accessible, tax-free benefit, flexible Slightly higher rate, fewer products available
Investing Instead Potentially higher returns over long term Market risk, returns not guaranteed, taxable
ISA Savings Tax-free, accessible, government bonuses (LISA) Current rates often lower than mortgage rate

Learn more about the offset mortgage approach.

Should You Overpay or Save?

The decision depends on your mortgage interest rate versus your savings rate:

The Simple Rule

If your mortgage rate > savings rate (after tax) = overpaying usually makes more sense

If your savings rate (after tax) > mortgage rate = saving may be better

Always keep an emergency fund first (3-6 months of expenses) before making overpayments. You want accessible cash for unexpected costs.

Frequently Asked Questions

Some lenders offer a "borrowback" facility where you can withdraw previous overpayments. However, this is not available with all lenders and may have conditions. If you want maximum flexibility, consider an offset mortgage instead, where your savings remain in your own account.

Most lenders default to reducing your term (keeping payments the same), which saves you the most money overall. Some lenders allow you to choose between reducing the payment or the term. If given the choice, reducing the term maximises your savings, but reducing the payment can help with cash flow.

If you overpay more than your allowance, you will be charged an Early Repayment Charge (ERC) on the excess amount. ERCs are typically 1-5% of the amount exceeding the limit. For example, if your limit is GBP 25,000 and you overpay GBP 30,000, the ERC applies to the GBP 5,000 excess. Always calculate whether the ERC is less than the interest you would save.

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