Explained: Why overpaying your mortgage could save you thousands of pounds

14/11/2025

Overpaying your mortgage could mean you’re mortgage-free sooner, but did you also know it could save you thousands of pounds in interest?

If you have a direct debit set up, it’s easy to think of your mortgage as a set cost that you can’t change. However, it’s often possible to make overpayments regularly or as a one-off lump sum. Even seemingly small amounts could really make a difference when you work out the total cost of borrowing.

Overpayments reduce outstanding mortgage debt

If you have a repayment mortgage, your regular mortgage payment will cover the accrued interest and a portion of the outstanding balance. In contrast, when you make an overpayment, all of it goes towards reducing your mortgage debt. 

As interest is calculated based on the outstanding balance, after you’ve made an overpayment, the amount of interest added the following month is lower. Over a long-term time frame, even small overpayments can compound and save you a significant amount.  

The power of regular mortgage overpayments

Imagine you have a £300,000 repayment mortgage with a 25-year term and an interest rate of 4.5%. 

Your regular repayments would be £1,167, and over the full mortgage term, the total interest paid would add up to £200,053. 

However, if you decide to overpay your mortgage by £100 each month, the total interest paid would fall to £177,690 and you’d pay off your mortgage two years and five months early. So, you’d save more than £22,000.

A one-off mortgage overpayment could save you money too

You might also choose to put the money for overpayments to one side and pay it as a lump sum. This could be useful if you might need the money to cover your day-to-day outgoings or you want it to be accessible in the short term in case of an unexpected expense.

Using the above scenario of a 25-year £300,000 repayment mortgage with an interest rate of 4.5%, if you made a one-off overpayment of £20,000 at the start of your mortgage, you’d reduce your mortgage term by two years and 10 months, and save £37,440 in interest. 

Balancing your short- and long-term finances

So, as the figures show, overpaying will mean your outgoings will rise now, but you’ll benefit from paying less in the long term.

Whether it’s the right decision for you will depend on your financial circumstances and priorities. Taking some time to understand your short- and long-term goals could help you assess how overpayments could fit into your budget now or in the future. 

One benefit of choosing to overpay, rather than shortening your mortgage term, is that it’s flexible. So, if your financial circumstances change or an unexpected bill arrives, you’re able to stop the overpayments to reflect this. 

Check if you could pay an early repayment charge when making overpayments

If you have a mortgage deal in place, you may face an early repayment charge (ERC) if you make overpayments, so be sure to check your paperwork first.

Usually, you can reduce the total outstanding balance by 10% a year through overpayments without incurring an ERC. However, this differs between providers. An ERC is typically a percentage of the debt you’ve repaid, so it could be a significant bill if you’ve paid a lump sum.

If you don’t have a mortgage deal, you can normally make overpayments without an ERC being applied. While this may be a benefit of not having a mortgage deal, usually the interest rate you pay isn’t competitive. Your mortgage adviser could help you assess your needs and understand if finding a deal could make financial sense for you.

Contact us to talk about your mortgage needs

If you’re searching for a new mortgage and would like the flexibility to make overpayments, please contact us. We could help you save money and reach the mortgage-free milestone sooner. 

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.