What does overpaying your mortgage by £100 a month save?
The short answer: on a £200,000 mortgage at 5% over 25 years, overpaying £100 a month saves about £24,505 in interest and pays it off 3 years 6 months early. That is interest you never pay: your total repayments fall by that amount, for £25,800 of overpayments spread over the years. Bigger balances, higher rates and earlier overpayments save more.
£100 a month on different mortgages
| Balance | Rate | Term left | Interest saved | Time saved |
|---|---|---|---|---|
| £100,000 | 5% | 25 years | £20,921 | 6 years 2 months |
| £150,000 | 5% | 25 years | £23,176 | 4 years 6 months |
| £200,000 | 5% | 25 years | £24,505 | 3 years 6 months |
| £200,000 | 4% | 25 years | £18,020 | 3 years 5 months |
| £200,000 | 6% | 25 years | £32,021 | 3 years 8 months |
| £300,000 | 5% | 30 years | £39,937 | 3 years 8 months |
The smaller the balance, the bigger £100 is in proportion, so the time saved is longer even though the interest saved is lower.
Different amounts on £200,000 at 5%
| Overpay each month | Interest saved | Paid off early by |
|---|---|---|
| £50 | £13,415 | 1 year 11 months |
| £100 | £24,505 | 3 years 6 months |
| £200 | £41,843 | 6 years 2 months |
| £300 | £54,833 | 8 years 2 months |
Why it works
Interest is charged on the balance. Every pound you overpay comes straight off the balance, so you stop paying interest on it for the rest of the term. Early in a mortgage, most of each payment is interest, which is why overpayments in the first years save the most.
Starting later still helps
Overpaying from the start saves the most, but it is never too late to be worth it. £100 a month on £200,000 at 5%:
| When you start | Balance then (about) | Interest saved | Time saved |
|---|---|---|---|
| Now, at the start | £200,000 | £24,505 | 3 years 6 months |
| After 5 years | £177,160 | £14,636 | 2 years 6 months |
| After 10 years | £147,849 | £7,673 | 1 year 8 months |
| After 15 years | £110,232 | £3,177 | 11 months |
Shorter term or lower payment?
When you overpay, most lenders either shorten the term and keep your payment the same, or keep the term and lower your payment. On the same £200,000 mortgage, overpaying £100 a month for a year and then asking for a lower payment cuts the payment by only a few pounds. Keeping the payment the same and letting the term shrink saves far more interest. Choose a lower payment only if you need the monthly breathing room, for example before a drop in income.
Monthly overpayments or a yearly lump sum?
£1,200 paid as one lump sum each January saves slightly more than £100 a month, because more of the money reduces the balance earlier in the year. The difference is small, usually a few hundred pounds over the whole mortgage. Monthly is easier for most people: it is set up once, it comes out on payday, and you don't have to find a large sum. A good middle way is a regular monthly overpayment plus any bonus or windfall as a lump sum, staying within the 10% yearly limit.
How to set it up
- Check your mortgage offer or lender's website for the overpayment allowance and whether it resets on 1 January or your mortgage anniversary.
- Set up a separate standing order or increase your direct debit. Some lenders let you do it in their app.
- Tell the lender whether you want a shorter term or lower payments.
- Check your annual statement to see the balance falling faster, and the new end date.
When you remortgage
Overpayments also help at remortgage time. A lower balance means a lower loan-to-value, which can move you into a cheaper rate band, often at 75%, 60% and lower. If your balance is close to a band, a lump sum just before you remortgage can be worth more than the interest saved alone. Ask your lender or broker where the bands sit.
Check before you start
- Overpayment limit: usually 10% of the balance a year on a fixed deal. £100 a month is £1,200 a year, well under 10% of most balances.
- How the lender applies it: most reduce the term, some reduce the payment. Ask which, and change it if you prefer the other.
- Can you take it back? Normal overpayments cannot be withdrawn. Some flexible mortgages let you borrow back, but most do not.
- Emergency fund first: keep enough cash for a few months of costs. See how much emergency fund you need.
- Dearer debts first: credit cards and loans usually cost more than your mortgage. See which debt to pay off first.
Overpay or save instead?
If your savings rate after tax is higher than your mortgage rate, saving can win, at least for now. If your mortgage rate is higher, overpaying is a guaranteed return at that rate. See should you overpay your mortgage or save? and how to pay off a mortgage in 10 years.
Related reading: what rising mortgage rates mean.
Figures assume the rate stays the same for the whole term and interest is charged monthly. Real results vary with rate changes.
Common questions
How much does overpaying £100 a month save?
On a £200,000 mortgage at 5% over 25 years, about £24,505 in interest, and it clears the mortgage 3 years 6 months early.
Is it better to overpay monthly or in a lump sum?
A lump sum saves more interest if you have the money now, because it reduces the balance sooner. Regular monthly overpayments are easier for most people and still save a lot over time.
How much can I overpay without a charge?
Most fixed-rate deals allow up to 10% of the balance each year. Above that, an early repayment charge applies. Standard variable rates and many trackers have no limit.
Should I reduce my term or my monthly payment?
Reducing the term saves more interest. Reducing the payment gives you more breathing room each month. Many lenders reduce the term automatically unless you ask otherwise.