Is it better to lower the payment or shorten the term?

Shortening the term always saves more interest, because you cut the time the debt charges interest and finish sooner. Lowering the payment frees up cash each month, which helps a tight budget. For 120,000 GBP at 3% over 20 years, overpaying 10,000 GBP, shortening the term saves about 7,600 GBP against roughly 3,300 GBP from lowering the payment. Many lenders shorten the term by default, so ask if you want a lower payment instead.

How much can I be charged for overpaying?

Most lenders let you overpay up to 10% of the balance each year with no charge. Above that, or during a fixed or discount deal, an early repayment charge (ERC) may apply, typically tapering from around 5% in year one to 1% in the final year. Once you roll onto the standard variable rate there is usually no ERC. Check your mortgage offer before overpaying a large sum.

Should I overpay the mortgage or invest the money instead?

Overpaying gives a guaranteed, risk-free return equal to your mortgage rate. If your rate is low and your horizon is long, investing, for example in a Stocks and Shares ISA, could build more wealth, though with risk. If your rate is high or you dislike volatility, overpaying is usually the sensible choice.

Is there any tax relief for overpaying my mortgage?

No. Tax relief on home mortgage interest (MIRAS) was abolished in April 2000, so there is no income tax relief on your payments or overpayments for your main residence. The benefit of overpaying is simply the interest you avoid. Buy-to-let landlords have a separate basic-rate 20% tax credit on finance costs.

Mortgage Overpayment Calculator

Q: When is it best to overpay: early or late in the mortgage?

As early as possible. With a repayment mortgage the early years are mostly interest, so every pound of capital you clear now stops generating interest for longer. Overpaying in the final years saves very little.

See how much interest you save by overpaying your mortgage, and which option suits you best: lower the monthly payment or shorten the term.

Repayment mortgage Payment vs term Early repayment charge

Your mortgage and your overpayment

Outstanding mortgage balance

What you still owe today. You will find it on your online banking or your latest mortgage statement.

Your current deal

Interest rate (%)

Years remaining

If you are on a tracker or your lender's SVR, use the rate you are paying right now (base rate plus your margin).

Amount to overpay

Early repayment charge (%)

Most lenders let you overpay up to 10% of the balance each year with no charge. An ERC usually applies only during a fixed or discount deal, often tapering from around 5% in year one to 1% in the final year. Many overpayments cost 0%.

Highlight the result for

Interest saved

£7,634

Shortening the term: you clear 26 months

Current monthly payment£665.52

Interest still to pay today£39,724

Early repayment charge£0

A · Lower the payment

New monthly payment

£610.06

You pay less each month

£55.46

Term (unchanged)

240 months

Interest saved

£3,310

B · Shorten the term

Payment (unchanged)

£665.52

New term

214 months

You clear

26 months

Interest saved

£7,634

Shortening the term saves you £4,324 more in interest than lowering the payment. Shortening the term always saves the most interest; lowering the payment frees up cash each month. If your rate is low, investing the money could beat overpaying: try it in the compound interest calculator.

How to use the mortgage overpayment calculator

Understand every figure you need to model an overpayment on your mortgage

Outstanding balance

What you still owe

The amount of capital left on your mortgage today, not counting future interest. You will find it on your online banking, your latest statement or the redemption figure your lender provides.

Example

You borrowed £180,000 eight years ago and have repaid £60,000 of capital: your outstanding balance is £120,000.

Interest rate

Your current rate

The rate you are paying right now. On a fixed deal it is the rate in your mortgage offer; on a tracker it is the Bank of England base rate plus your agreed margin; on the lender's SVR it is whatever they currently charge.

Example

Tracker at base rate 4.00% plus a 0.85% margin = a 4.85% interest rate.

Amount to overpay

Your lump sum

The money you are going to put towards the mortgage. A word of advice: do not drain your savings. Keep an emergency fund of three to six months of outgoings before you overpay.

Example

You have £16,000 saved and your outgoings are £1,500 a month: overpay £10,000 and keep £6,000 as a buffer.

Early repayment charge

Check your deal

What your lender can charge for overpaying beyond your allowance. Most lenders let you overpay up to 10% of the balance each year free of charge. An ERC usually bites only during a fixed or discount deal, often tapering from around 5% to 1% over the years. Many overpayments cost nothing.

Example

You overpay £10,000 with a 1% ERC on the part above your allowance: you pay roughly £100 in charges.

Frequently asked questions about overpaying your mortgage

We answer the most common questions about mortgage overpayments

It depends on your goal. Shortening the term always saves more interest, because you cut the time the debt is charging interest: you finish sooner and pay the lender less overall. Lowering the payment frees up cash each month, which helps if your budget is tight. In this calculator's example (£120,000 at 3% over 20 years, overpaying £10,000), shortening the term saves about £7,600 in interest against roughly £3,300 from lowering the payment. Note that many lenders shorten the term by default; ask explicitly if you want your monthly payment lowered instead.

Most lenders give you a penalty-free overpayment allowance of 10% of the balance each year. Above that, or if you are tied into a fixed or discount deal, an early repayment charge (ERC) may apply. ERCs typically taper over the deal period — for example 5% in year one, falling to 1% in the final year of a five-year fix. Once you roll onto the lender's standard variable rate there is usually no ERC at all. Always check your mortgage offer or ask your lender for a redemption statement before overpaying a large sum.

Overpaying gives you a guaranteed, risk-free return equal to your mortgage rate: if you pay 3%, every pound overpaid effectively earns a tax-free 3%. If your rate is low (2–3%) and your horizon is long, investing the money — for example in a Stocks and Shares ISA — could build more wealth, though with risk and no guarantee. If your rate is high (over 4%) or you dislike volatility, overpaying is usually the sensible choice. It is also worth comparing against the best easy-access or fixed savings rates first. Model the alternatives with our compound interest calculator.

As early as possible. With a repayment mortgage, the early years are mostly interest, so every pound of capital you clear now stops generating interest for longer. Overpaying in the final years barely moves the needle, because by then most of the payment is already capital rather than interest.

No. Tax relief on mortgage interest for your own home (MIRAS) was abolished in April 2000, so there is no income tax relief on either your payments or your overpayments. The benefit of overpaying is simply the interest you avoid. (Different rules apply to buy-to-let landlords, whose finance costs attract a basic-rate 20% tax credit — that is a separate regime and not the case for a main residence.)

A partial overpayment reduces part of the balance and you choose whether to lower the payment or shorten the term. Full repayment clears the mortgage entirely: you stop paying interest, but it may trigger any applicable ERC plus a small mortgage exit / deeds release fee (often around £50–£300). Before clearing the mortgage in full, make sure you are not left without an emergency fund.

It can. If you hold a decreasing term (mortgage) life assurance policy that tracks the outstanding balance, overpaying brings the debt down faster, so you may be able to review the cover and reduce the premium. If you clear the mortgage completely, you may no longer need the policy at all. Also check that overpaying does not breach any conditions tied to a linked product or offset arrangement on your deal.

Overpaying your mortgage in 2026: is it worth it?

A mortgage overpayment means paying back part of the outstanding balance ahead of schedule. Because a UK repayment mortgage works on standard amortisation, every pound of debt you clear today stops charging interest for all the years that were left: that is why overpaying early saves far more than overpaying near the end.

When you overpay you have two choices: lower the monthly payment (you pay less each month over the same term) or shorten the term (same payment, but you finish sooner). This calculator shows both scenarios side by side so you can compare the real interest saving of each, after deducting any early repayment charge.

Lower the payment or shorten the term? A side-by-side comparison

Criterion	Lower the payment	Shorten the term
Interest saved	Lower: the debt runs for the same length of time	Highest: you cut the years the debt charges interest
Monthly cash flow	Improves: you pay less each month straight away	Unchanged: you keep paying the same amount
Tax	Same for both: there is no income tax relief on a main-residence mortgage (MIRAS ended in 2000)
Best for	Tight budgets that need breathing room each month	Anyone who wants to pay the lender as little as possible and does not need the extra cash

How much can you be charged? Typical early repayment charges

Most lenders let you overpay up to 10% of the outstanding balance each year with no charge. Beyond that allowance, or while you are tied into a deal, an early repayment charge (ERC) may apply. ERCs vary by lender and product, but they usually taper over the deal period. These are typical figures:

Deal type	When	Typical ERC
Any deal	Up to 10% of the balance per year	0%
Fixed / discount	Early years of the deal	up to 5%
Fixed / discount	Final year of the deal	around 1%
Tracker	Varies by product	0–1%
Standard variable rate	After your deal ends	usually none

Tax and overpayments: no relief on your own home

There is no income tax relief on the mortgage for your main residence. Tax relief on home mortgage interest (MIRAS) was withdrawn in April 2000, so neither your monthly payments nor your overpayments reduce your tax bill. The whole benefit of overpaying is the interest you avoid — which is exactly what this calculator works out. The picture is different only for buy-to-let landlords, whose mortgage finance costs attract a basic-rate (20%) tax credit; that is a separate regime and does not apply to the home you live in.

Tip: use your annual allowance and overpay early

Stagger larger overpayments to stay within your lender's 10% annual allowance and avoid an ERC. And remember: the sooner you overpay in the life of the mortgage, the bigger the saving, because in the early years most of the payment is interest.

Overpay or invest? The compound interest alternative

Overpaying your mortgage is the equivalent of a guaranteed, tax-free return equal to your mortgage rate: at a 3% rate, every £10,000 overpaid saves you interest at 3% with no risk. The alternative is to invest the money: if your rate is low and you expect a higher annualised return over the long run, the power of compound interest — for example inside a Stocks and Shares ISA — could build more wealth than the interest you save by overpaying. The catch is that investing carries risk and overpaying does not. A common middle path is to split the money: part to overpay (peace of mind) and part to invest (potential growth).

Note: This calculator gives an indicative estimate based on standard amortisation at a constant rate. The exact figures depend on the terms of your mortgage, on future rate changes if you are on a tracker or variable deal, and on the early repayment charge your lender applies. Check with your lender before making a decision.

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