Updated: April 22, 2024
Mortgage Overpayments
Want to make overpayments on your mortgage? Here’s everything you need to know about how to overpay and whether it’s worth it.
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If you’re already a homeowner, you may wonder how overpaying on your mortgage works – and whether it’s worth it. For those still researching home ownership, it’s also an important topic and process to understand before you apply for a mortgage.
This guide covers all the essential details about paying extra on your mortgage. We’ll explain how to use a mortgage overpayment calculator, the benefits and disadvantages of overpaying with your mortgage, and where to get expert advice to save yourself money.
Keep reading for a complete explanation of how all this works or click on a link below to jump straight to a section…
Can you make overpayments on your mortgage?
Yes, this is possible to arrange with most lenders. However, whether it’s worth overpaying on your mortgage depends on your specific home loan arrangement and financial circumstances.
Remember that most lenders will have a cap on the amount you can overpay, but a small number offer mortgages with unlimited overpayments.
How does it work?
The exact process for overpaying on your mortgage will depend on the terms agreed with your lender and the type of mortgage. Overpayments will be extra payments you make on top of your regular repayments, and you can do this using one of the following methods:
- Regular monthly overpayments – you can increase your usual manual or direct debit payments by an increased fixed amount each month. Or, adjust how much you overpay at regular intervals, depending on your finances and income (particularly helpful if you earn overtime or commission).
- Lump sum payments – you can also overpay with a lump sum mortgage overpayment. This method could be helpful if you have an unexpected windfall, inherit some money, or earn a bonus from work.
- Combination of both – some lenders will be pretty flexible with how you overpay your mortgage. So, you can use a mixture of regular overpayments and one-off lump sums to reduce how much you owe.
- Reduce your term – if you request to reduce your mortgage term with your lender, this will naturally raise how much you’re repaying monthly. So, each month you’d end up paying over and above what you were paying with a longer term.
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How much extra can you overpay on your mortgage?
This depends on your specific mortgage terms. Certain lenders have caps on how much you can overpay, usually 10% of your outstanding balance each year.
There are ways you can find out what might make sense for you to overpay. The easiest way is using a mortgage overpayment calculator (sometimes called an early repayment calculator).
If you want to know how much you can overpay on your mortgage, check out our calculator below. It lets you fill in your current details and will show you how much better off you could be. It shows the money you would end up saving by overpaying and reducing your term (whether that’s by a lump sum or monthly overpayments).
Mortgage Overpayments Calculator
This calculator can show you how much you could save and what your new mortgage payments will look like if you were to make overpayments as a lump sum, monthly amount or both.
Your current monthly repayment is:
What your mortgage repayments will look like based on your overpayments:
Potential mortgage term reduction:
Amount of interest you could save:
Now that you have a rough idea of how overpayments will affect your mortgage deal, make an enquiry to speak to a broker for bespoke advice about whether this is the right option for you.
How to overpay on your mortgage
If you’re thinking about making overpayments on your mortgage, or if you’re looking for a home loan that offers favourable terms for overpaying, here are some valuable steps to follow:
gather your documents
If you have an existing mortgage, gather all your relevant personal information and details of your mortgage. This will include the lender you’re using, paperwork relating to your loan terms, and the particulars of your house. It’s also worth having information related to your current (and potential future) finances.
Those who are still looking for a mortgage should also have to hand details such as photo ID, proof of address, 3 months’ payslips and bank statements. It’s also worth keeping hold of any information relating to properties you’re interested in and projections of your finances to see if mortgage overpayments would be feasible.
speak to a mortgage overpayment expert
Once you have your documents and details, the next step is to speak with an expert mortgage broker. A specialist broker will be able to take a look at all your current paperwork and finances then advise you on the best way to overpay on your mortgage (whether that’s by extra payments or reducing your term).
They’ll also be able to take an in-depth look at your current lender to see if overpayments are possible through negotiating better terms. Your broker will then walk you step-by-step through the process of overpaying. Or, if you’re looking for a mortgage – introduce you to a lender with the most favourable overpayment terms.
overpay your mortgage
Once your broker has looked at your current mortgage set-up, they’ll advise you on the best way to overpay (if it makes sense financially). Also, suppose your existing lender can’t accommodate overpayments or has restrictions that do not suit your needs, a skilled advisor will be able to help you find a more suitable mortgage lender.
The benefit of using an expert mortgage broker is that they can assess both your lending options and household finances to get you set up with the right arrangement for overpaying your mortgage in the most efficient and cheapest way possible.
Just make an enquiry if you’d like to have a free introductory chat with an expert broker specialising in mortgage overpayments.
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Should you overpay your mortgage?
If you’re a UK homeowner, below are some major benefits and disadvantages to consider when it comes to overpaying your mortgage.
Benefits of mortgage overpayment
- It means you’ll pay back less interest over the life of your mortgage.
- With the right help, it can be a flexible way to manage your home finances.
- You can own your home outright in a shorter length of time.
- Increasing the equity you own by overpaying will lower your loan-to-value (LTV) ratio, shrinking your debt and potentially leading to more options (and better interest rates) in future if you remortgage.
- The practical ‘return’ for overpaying can be better than keeping cash because you’re likely paying a higher interest rate on your mortgage than you’d get with a savings account.
Disadvantages of paying off a mortgage early
- There can be additional charges and fees for overpaying (especially if you breach a specified threshold), usually in the form of an ERC (early repayment charge).
- If you want to restructure your loan terms (perhaps to reduce the term length), there can be admin charges from your lender.
- Most mortgage lenders won’t let you access ‘overpaid’ money without remortgaging to release equity.
- Expert financial advice is often required to stay within overpayment rules and ensure you don’t overstretch yourself. Sometimes overpaying your mortgage isn’t the most financially efficient move to make.
Lenders open to mortgage overpayments
Here are a few examples of lenders who do provide the ability to overpay on your mortgage:
- Natwest – has a strict 10% overpayment limit in place for mortgages. If your loan is made up of more than one part, you can overpay up to 10% of the balance on each part.
- Barclays – the majority of mortgage products from Barclays have a 10% overpayment cap. Anything over this will incur a penalty charge.
- Halifax – offers the ability to overpay, but it’s a specific concession you have to select when taking out your mortgage, and Halifax says they can change or withdraw this at any time.
- Nationwide – the fixed and tracker rate mortgages from Nationwide have an overpayment allowance of 10% per year, minus any admin fees.
- Santander – allows a 10% overpayment per calendar year, but anything over this will incur an ERC from Santander.
- TSB – some products from TSB allow mortgage overpayment, but only up to 10% without penalties.
As you can see, most high street lenders don’t have much flexibility with their terms. With any products that allow overpayment, there’s usually a rigid 10% limit. This may not suit everyone, but there are a handful of lenders with higher limits, and a small few who provide mortgages with unlimited overpayments.
If you want to discover all the available options for lenders and overpaying on your mortgage, the best strategy is to speak with a specialist mortgage advisor.
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Is it worth overpaying an interest-only mortgage?
It can be, but it depends on your goals. Overpayment for an interest-only mortgage doesn’t come with the same structure of benefits as a repayment mortgage. Instead of overpaying and reducing the capital you owe, with interest-only, your extra payments can only be used towards the interest.
So, overpayment on an interest-only mortgage means you can only reduce future interest payments or the total interest you pay on the mortgage. It can still be helpful, but you won’t end up owning more equity. Discussing your options with an expert mortgage advisor is the best way to see if it makes sense.
Speak with a mortgage overpayment specialist
Only some mortgage brokers will have in-depth knowledge of the complete market or have the skills to be able to take a look at your personal finances and see if overpaying on your mortgage is the right move.
We offer a free broker-matching service. This means we’ll quickly assess your needs and then introduce you to an expert mortgage broker who specialises in overpayments for every possible type of home loan.
Just call 0808 189 0463 or make an enquiry. We’ll arrange a free, no obligation chat between you and your ideal mortgage broker today.
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FAQs
This will depend on your current mortgage terms and the investment options available. There are instances when it makes sense to invest because the returns can leave you in a better financial position than paying back your mortgage early.
Advice from an independent mortgage broker and possibly a financial advisor is the best way to find out.
Your regular mortgage payments will cover the interest. So, any overpayments that you make won’t be charged additional interest. This is why some lenders limit how much you can pay off early because they will usually make less money over your mortgage term if you are overpaying.
No, overpayments mean that you’ll be increasing how much you pay. However, this would reduce the term because you’d pay off the loan balance faster, meaning fewer monthly payments over the life of the mortgage.
Typically, no. Your mortgage overpayments all go towards repaying your balance quicker – this is the main purpose of doing it. So, as such, these payments are not kept separate from your original repayment amount.
Some lenders may allow you to borrow money against what you have overpaid, should you need to do so and, at any time, if the additional amount becomes too much you can always request to have your repayments reduced back down.
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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects. Ask us a question and we'll get the best expert to help.
Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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