Could you reduce your overall mortgage cost – or shorten the term – with overpayments? If your mortgage doesn’t charge fees for early repayments, it’s worth considering if you have capital to spare.
Overpayments operate in one of two ways. The first is to overpay to reduce your total mortgage balance without reducing your monthly repayment amount. This lets you pay off your mortgage faster.
The second option is to overpay to subsequently reduce your monthly payments. In this case, your mortgage term (length) will stay the same – but you’ll pay less each month.
Our mortgage overpayment calculator shows you how overpayments could shorten your mortgage term or reduce your monthly payments. Each lender has different arrangements, so make sure you speak to an independent mortgage advisor before you decide to overpay.
Mortgage balance graph
✅ You could reduce your mortgage term by 0 years 0 months
By opting to keep your monthly payment of 0 the same, your mortgage term will reduce by 0. This is due to the overpayments reducing your mortgage balance faster than the original schedule.
✅ You could save 0 in mortgage interest
Reducing your mortgage term will reduce the total amount of mortgage interest you pay by 0. There are two factors that contribute to this saving. First, the lender reduces your mortgage balance by your monthly mortgage overpayments. Second, since your monthly payments stay the same, you are in effect making extra monthly overpayments that further reduce your mortgage balance.
✅ You could reduce your mortgage balance by 0
At the end of your mortgage term, your mortgage balance will be 0. With your mortgage overpayments on an interest-only mortgage, you have reduced your balance by 0.
Mortgage payments graph
Actual mortgage payment
This is the total mortgage payment amount you make a month. It includes the contractual mortgage amount plus any overpayments you make.
Contractual mortgage payment
Based on the mortgage terms entered, this would be the monthly mortgage payment due to the lender.
Potential mortgage payment
This is the amount you could potentially reduce your monthly mortgage payment to if the lender allows it. Under this scenario, your mortgage term of 0 is not reduced.
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You may make regular overpayments by paying more than the agreed monthly payments. It offers you the flexibility to stop the overpayments any time or to change the amount you overpay by. However, when you no longer overpay, you will still be liable for the contractual mortgage payments.
Regular overpayments can quickly start saving you money, as the interest payable on the mortgage balance reduces from the next payment.
If you find that you have some extra cash that you would like to use to reduce your mortgage balance, you could make a one-off overpayment. For example, if you receive an annual bonus or inheritance.
If this is a big lump sum payment, check that you are not exceeding your annual overpayment allowance.
Most mortgage deals allow a certain amount of overpayment per year without a penalty. It is typically 10% of the mortgage balance per calendar year, but check your mortgage offer for the details. Your actual allowance may be different and it may apply per year starting on your completion date.
If you overpay by more than the allowance, then you will be liable to pay a penalty, which is called the early repayment charge (ERC). This penalty may be a percentage of the entire overpayment amount or just applied to the portion that is above the overpayment allowance.
You should be able to find the details of the overpayment allowance and the early repayment charge on your mortgage deal illustration, your mortgage offer or on the annual mortgage statement.
This calculator is for guidance only, as it assumes that your interest rate remains the same throughout the mortgage term. However, as your interest rate or personal circumstances change, it is a good idea to check your mortgage options. Contact our advisers, who will be happy to review your situation and help you with the most suitable option.
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