Should I overpay my mortgage?
It's a question of whether you save, or whether you overpay your mortgage
Mortgage overpayments are commonplace right now as homeowners look to offset the impact of today's expensive interest rates. Overpaying your mortgage should be a serious consideration if you have the cash. Many can save £10,000s. Yet rates on many savings accounts are decent, so those on older, cheaper mortgages may actually do better in savings. This guide helps you decide what's best for you.
This guide was originally written by Martin Lewis, and is now updated by the MSE Money Team.
Overpaying your mortgage often wins over savings – but not always
Get it right and overpaying your mortgage can be a huge cash boost, because...
You'll be eating into the debt you've built up from buying a home, meaning you can be mortgage-free sooner (it's important to make sure any overpayments reduce the debt and shorten the term, rather than reduce your monthly payments).
You don't pay interest on the amount you overpay.
The money you'd save on interest often (but not always) beats the returns possible by putting it in savings.
The gains can be worth £10,000s. Here's a real-life example of someone who's saved big by overpaying their mortgage:
Started making overpayments on my mortgage seven years ago. Saved £18,600 in interest and paid up eight years and three months early. So my ex-mortgage payment can now go towards a fantastic retirement pot.
- Debbie
I've made an extra 13 payments towards my mortgage so far, saving me around £5,000 in interest and reducing my mortgage term by four years.
- Letitia
In the first week of 2025 alone, Santander borrowers made £100 million of mortgage overpayments. And across the whole of 2024, Santander borrowers overpaid their mortgages by more than £2 billion collectively.
But working out whether overpaying your mortgage is right for you isn't always straightforward.
The first thing to do is check whether you should overpay your mortgage or save the cash elsewhere – a key decision you'll need to make. The simple rule of thumb is:
KEY RULE: If your mortgage rate is around the same, or higher than your savings rate, then it makes sense to overpay...
That's because when it comes to savings, the reverse isn't automatically true. A higher savings rate could beat overpaying your mortgage, but it won't always. It will depend on a number of factors, including whether you are planning a one-off overpayment or if you want to make regular overpayments (say monthly) over the longer term, how much your mortgage debt is, how many years you have left to repay your mortgage and whether you pay tax on savings interest.
The best way to establish what's best is to use our Should I overpay my mortgage? calculator below to see whether saving or overpaying your mortgage comes out on top. The section below tells you more about how to measure and compare the savings.
If it's likely that overpaying wins, see the rest of this guide for how to make an overpayment.
We were one of the lucky ones during the financial crisis. Our mortgage interest rate dropped so low that we decided to triple our repayments for a year, from £700 a month to £2,100 a month. We hoped this would help shave a year off our 23-year mortgage term. But the interest rates kept dropping, so we continued overpaying – and we managed to clear our £120,000 mortgage in five years.
- Tony
Following the advice of Martin Lewis, I started overpaying my mortgage. Nearly 16 years later, I've now overpaid enough to clear my mortgage next week – shaving nine years off the mortgage term and saving £1,000s in interest. I would haven't achieved this without Martin's advice, plus own hard work, discipline and dedication.
- Trevski
More mortgage overpayment success stories
Calculate how much you'll save by overpaying your mortgage
Overpaying can help you save money – possibly £10,000s over the lifetime of a mortgage.
As the table shows, overpayments don't have to be big bucks. Even a regular overpayment of £50 or £100 a month can dramatically reduce the interest you pay, shorten your mortgage term, and may even overshadow savings interest...
SAVING/ OVERPAYMENT EACH MONTH | MORTGAGE TERM REDUCTION | TOTAL INTEREST SAVED OVERPAYING A £150K MORTGAGE AT 5% (1) | INTEREST IF YOU SAVED THE OVERPAYMENT AT 4.5% (2) |
|---|---|---|---|
£10 | Six months | £2,890 | £2,359 |
£50 | Two years, six months | £13,020 | £9,610 |
£100 | Four years, six months | £23,200 | £15,423 |
£200 | Seven years, seven months | £38,200 | £21,155 |
£500 | 12 years, 10 months | £62,790 | £23,736 |
£1,000 | 16 years, 10 months | £80,340 | £20,145 |
(1) The mortgage has a 25-year term. (2) Savings are pre-tax and stop as soon as the mortgage is paid off to make the comparison fair.
You can save such large sums of interest by overpaying because it doesn't just get rid of the debt – it gets rid of the interest you would have paid on that bit of borrowing in the future too.
It's worth knowing this isn't a question of whether overpaying your mortgage beats your current savings. It should be a question of whether overpaying beats the highest-paying savings available. Too many people are still earning pitiful rates when much better savings rate are actually available...
So, if you haven't already, check our Top savings accounts and Top cash ISA guides for the top-paying accounts.
That aside, overpaying your mortgage may still win out over a higher savings rate, especially if you are planning a regular overpayment over a longer period of time.
To get a better idea of exactly how much overpaying on your mortgage could save you, use our:
Mortgage overpayment calculator
As well as letting you put in both one-off and recurring mortgage overpayments, it also gives you an indication of what you'd earn in interest if you put your cash in a savings account instead.
Looks like you'd win by overpaying? The three things you MUST check first
If you've got this far, I'm going to assume you've got some spare cash and, after using our calculator, it looks like you'd do better to use it to overpay on your mortgage rather than put it into savings.
But before you chuck all your savings at your mortgage, it's crucial that you first check the following...
Check 1: Do you have other, expensive debts? If so, clear those first
A crucial rule of debt repayments is: clear the most expensive debts first. Do so and the interest doesn't build up as quickly, saving you cash and giving you more chance of clearing the outstanding balance on your debts earlier. Therefore, as a rule of thumb...
Clear high-interest credit cards and loans before overpaying your mortgage, as they're usually more expensive.
There are a few debts you probably shouldn't pay off before your overpaying your mortgage, including these...
This specifically refers to official loans from the Student Loans Company.
Students who started university in England or Wales between 1998 and 2011, plus Northern Irish & Scottish students starting any time
For these student, interest is set at the lower of base rate plus one percentage point, or the rate of inflation (RPI), making it a relatively cheap form of long-term debt. It's possible, if inflation is high and interest rates are low, you may have a mortgage that's cheaper than the student loan but over the long term, that's unlikely.
Plus, unless you're earning over a set threshold (the exact amount depends on when and where you went to uni) you won't have to make monthly loan repayments anyway. Due to the odd nature of these loans and how you repay them, you should usually prioritise your mortgage over repaying these.
For more information, see Student loan repayment.
Students who started university between 2012 and 2022 in England, or since 2012 in Wales
For these students, interest is charged at the rate of inflation plus 3% while you're studying, then on a sliding scale from RPI to RPI+3% depending on how much you earn. So, for most students this applies to, it's possible that you'll pay a higher interest rate on your student loan that you will on your mortgage.
However, that doesn't automatically mean that you should pay your loan off above overpaying your mortgage. Whether you should overpay your loan depends on whether you're likely to pay it all back before it's wiped in 30 years' time. Many won't, and if all your student loan overpayments are doing is depriving you of extra cash now, then it's not worth it.
For more information see Should I pay off my Plan 2 student loan?
It's arguable that those who are financially savvy, with top credit scores, strict organisation and timekeeping who disloyally shift from 0% credit deal to 0% deal (see the best balance transfers guide) should also pay their mortgage off before their credit cards, as even with balance transfer fees they're cheaper than most mortgages.
However, this strategy should only really be adopted by the extremely financially competent. For anyone who doesn't trust themselves to stay disciplined, it's generally best to clear card debts first, even at a short-term 0%
Student loan debts
Credit card debt at 0%
Check 2: Can you overpay without penalty? Most can overpay 10% a year, but get it wrong and you risk £1,000s in fees
How much you can overpay depends on what sort of deal you have...
-
If you're on a fix or discount mortgage deal. Most lenders allow you to pay 10% of your mortgage balance as an overpayment each year without penalty.
-
If you're on an SVR (and some trackers). Here you can usually overpay by as much as you want (best to check if you're on a tracker). Many SVRs are expensive though, so if on one it's best to check if you can save by remortgaging, rather than only overpaying.
If your lender does allow overpayments, but you overpay more than it allows, you'll usually be charged a fee, typically between 1% and 5% of the amount overpaid.
An example will help...
Say you're on a five-year fixed rate on a £150,000 mortgage and decide to overpay a lump sum two years into the deal. However, instead of sticking to your lender's 10% (£15,000) limit free of penalty, you overpay £20,000 instead.
This means you must pay a 3% penalty on the extra £5,000 overpayment – £150.
However, this 'percentage left on loan' rule of thumb is very rough, so always double-check with your lender.
The reason for such harsh penalties is because lenders want you to stick with them once the cheap rate ends and because they've also budgeted to earn a certain amount of interest from you during the mortgage deal, and overpaying means they'll get less.
Check 3: Do you have a sufficient emergency fund?
I often say it's worthwhile having a cash emergency fund for those who are debt-free apart from their mortgage.
Yet, when you overpay most mortgages the cash is gone. So if you've an emergency (leaking roof or redundancy, not new shoes) and you'd overpaid with all spare cash, you could be forced to borrow again instead. Your earlier overpayments may not stop lenders charging you for being in arrears if you miss monthly repayments.
So it's always a good idea to keep an emergency fund in a top savings account – I always say three to six months' worth of cash is a good guide, enough to live on if you lost your job, for example. If you're thinking of using newly arriving extra income (such as a pay rise) to overpay your mortgage, then build up an emergency fund first.
This applies even if the calculator shows you'd be better off overpaying your mortgage. It's what's known as 'a premium for liquidity'. In other words, it's sacrificing some interest for easy access to cash when needed.
Mortgages with flexible features (such as offset mortgages or those with a 'borrow-back' facility) allow you to overpay and borrow the money back. So you can overpay the mortgage, then withdraw cash without penalty if you need it again. If you have one of these, there's no problem putting all spare cash in the mortgage.
It can be used like a high-rate savings account as you're effectively saving at your mortgage rate but without paying tax. That said, as mentioned earlier, this is less beneficial as all savings accounts give you all the interest without tax taken off thanks to the Personal Savings Allowance.
This example shows how it can work:
On a £150,000, 25-year mortgage, offsetting £25,000 of savings could mean you pay off your mortgage one year and 10 months early, and save £3,350 in interest, while still having access to your savings if needed.
Don't misread this as saying everyone should go for one of these mortgages. The problem is their interest rates are usually higher than standard mortgages', and for many the extra cost of the mortgage debt more than outweighs the gain on savings.
But some of these flexible features are not well publicised so check with your lender if you have this option.
The exception – mortgages with flexible features, such as offset mortgages
Overpaying could mean you save twice over when you come to remortgage...
If you're overpaying your mortgage, you don't just get the advantage of paying interest on a smaller amount of debt. Overpaying also means your loan-to-value ratio – that's the percentage of the property value that you need to borrow as a mortgage – falls faster too, as you pay off more of your mortgage and build equity in your home. This means that when it comes to remortgaging, you may be able to get a cheaper deal than if you hadn't overpaid.
Therefore if you've got a sizeable savings pot, or you're overpaying month by month, by using savings to reduce your mortgage borrowing and cutting your loan-to-value (LTV), you may get access to cheaper rates.
In truth, you'll need to be close to one of the key trigger LTV thresholds – where acceptability increases substantially and cost drops – for overpaying to make a difference. But if you are, the savings can be huge. As a rule of thumb, the main thresholds are:
95% LTV: Above this, you won't be able to remortgage at all.
90%, 85%, 80%, 75% and 60% LTVs: Go below each of these and the top mortgage deals get cheaper.
Rates get cheaper as your LTV drops...
TWO-YEAR FIX EXAMPLES | FIVE-YEAR FIX EXAMPLES | |
|---|---|---|
90% | 4.88% | 4.69% |
80% | 4.50% | 4.36% |
75% | 4.27% | 4.19% |
60% | 3.99% | 3.99% |
Remortgage rates for £200,000 property, 25-year term, correct as of March 2025
How to cut the cost of your mortgage
If you are close to an LTV band, or you're coming to the end of a mortgage deal, it's important to check the market to see if you can find a better deal.
Take a quick look at our Mortgage Best Buys tool to see what rates are available or find a broker to help you search in our Cheap mortgage finding guide.
How do I overpay my mortgage?
If you've done all the sums and checks above and think overpaying your mortgage is the right decision, then the simplest way, at least the first time you do it, is to give your lender a call. This way, you can check it's allowed, and also ensure your overpayment(s) are used the right way.
When you make an overpayment, it's likely your lender will offer you two options:
to reduce next month's payment by the amount you've overpaid.
to keep payments the same and reduce your mortgage balance.
This is something to watch for – if you get it wrong, it means your overpayment won't actually help you out that much. If you get this choice, tell your lender you want any overpayments to reduce your mortgage balance (which will have the same impact as shortening the term).
If your overpayment simply reduces next month's payment, it just means you're paying slightly early, saving a few days' interest, but not much. You'd still repay almost as much as you would sticking to contractual payments, and – crucially – you won't have reduced your balance or term.
Below we explain more about overpaying vs officially reducing your term.
Once you've agreed that future overpayments will reduce your mortgage balance, you can usually make overpayments through online banking by setting your mortgage account up as a new payee, then making payments as and when you wish. Or, if you want to overpay the same amount every month, you can set up a standing order.
Overpaying regularly vs officially reducing the term
In many cases it'll be better for you to overpay regularly without officially decreasing your mortgage term. That's because overpaying regularly does almost exactly the same job as decreasing the term – both mean you pay more each month, you pay less interest, and your mortgage will be paid off sooner.
If you officially shorten the term, you'll lock yourself in to a contract with higher monthly payments. So if your income suddenly goes down, or your interest rate rises, you could struggle to meet the payments. Whereas if you're overpaying, you can choose to stop those overpayments – giving you more wiggle room.
If after making an overpayment your lender tells you your mortgage term hasn't been officially reduced – or that you'd need to pass an affordability test to shorten it – remember that overpaying has the same practical effect, but with that extra flexibility.
Read Martin Lewis's blog on the full pros & cons of overpaying mortgage versus shortening term.
Lender recalculated your monthly repayments?
We're aware that a few lenders factor in any overpayments you make by recalculating/reducing your monthly repayments to ensure your mortgage term stays the same (even if you're on a fixed-rate deal). This recalculation might be done at the end of the year or on the year anniversary of your mortgage.
While this could mean you end up with a bit more disposable income in the short-term, it reduces the long-term benefit of overpaying.
If you're with a lender that does this, and you see your monthly mortgage payments reduce as a result of overpaying, you should consider increasing your regular overpayments to compensate for any reduction in your monthly payments – provided it doesn't go above the amount your lender allows you to overpay each year.
Quick questions:
Not usually, as most mortgages calculate interest daily, meaning that whatever day you overpay, your interest the next month is calculated on your new, lower balance – this is the ideal if you're an overpaying borrower.
But if you've got an older mortgage (10+ years), you might need to be on the ball to time your overpayment correctly, as it's possible your interest may be calculated monthly, quarterly or annually instead. If you're unsure, it's best to check your mortgage or call your lender to see which it is.
The less frequent their calculations, the more important it is to plan the timing of your overpayments. With monthly- and especially annually-calculated mortgages, it's crucial to time any extra repayments correctly for one simple reason.
Mortgage overpayments will only count AFTER the calculation's made. Put it in at the wrong time and you'll miss out.
An extreme example should help to simplify this...
| DONE WRONGLY | DONE RIGHT |
|---|---|---|
Mortgage type | Annually calculated | Annually calculated |
Mortgage rate | 5% interest | 5% interest |
Calculation date | 2 May | 2 May |
Amount overpaid | £10,000 | £10,000 |
Overpayment date | 3 May | 1 May |
Interest reduction over year | Nothing | £500 |
In this example, if you missed the annual date you'd be better off putting the money in a top cash ISA or easy-access savings account so you're earning interest in the meantime. Then arrange to make the mortgage overpayments a few days before the calculation is made.
If you have a substantial lump sum to overpay, ask the mortgage company if it will automatically make a calculation, even if it's not the calculation date. Many will do this for you, though you may need to be overpaying a minimum of about £500 to £1,000.
The above all applies to interest-only mortgages too – if you make overpayments, lenders should apply these to the outstanding debt, and cut your monthly interest payments from the next calculation date. If your overpayment significantly dents the debt, it may make moving on to a repayment mortgage an affordable option.
Usually you can, yes. But think carefully, because you're already sort-of overpaying with your offset.
An offset mortgage keeps your mortgage debt and savings in separate pots with the same bank or building society. Though the big difference is your cash savings are used to reduce – or 'offset' – the amount of mortgage interest you're charged.
So, if you've a mortgage of £150,000 and savings of £15,000, then you only pay interest on the difference of £135,000.
The big difference between offsetting and overpaying is that for most mortgages, if you overpay, that money is gone from you forever. You can't get your hands on it if you're suddenly short of cash. But, in an offset, the savings remain yours and can be withdrawn whenever you want with no problem (but obviously then it no longer offsets your mortgage debt).
So, think carefully before turning offsetting into overpaying...
Now we hit 'interest'-ing territory (forgive the pun). Investing means putting money in a financial product that involves taking a risk in the hope the money will grow more quickly, although equally, you could lose.
While our calculator shows that it can be tough to find a savings account that beats overpaying a mortgage, the same isn't true with investing.
A top-performing investment will pay substantially more than 10% a year, yet one that performs badly can lose serious amounts of money too. This includes putting cash into your pension or buying more property (possibly as a buy-to-let) rather than paying off your home loan. If it goes well you'll gain, if it goes badly you'll lose. There are no guarantees.
We don't cover what to invest in as there's no right or wrong answer, only how to buy investments the cheapest way (see Share dealing need-to-knows and Stocks & shares ISAs) so we won't be taking you much further along this road. If you need help on this, seek independent financial advice.
However, investing isn't wrong. Done well it's very profitable, provided you understand the risk you're taking.
But to generate the amount of investment returns equivalent to paying off your mortgage, you'd usually need relatively high-risk investments – overpaying the mortgage gives a surety of return.
Does it matter when I make overpayment(s)?
Can you overpay an offset mortgage?
Would I do better investing rather than saving?
We've got lots of other helpful guides and tools, including:
Remortgage guide. Free PDF guide.
Cheap mortgage finding. How to find the top deal for you.
Mortgage Best Buys. Find your top mortgage deals.
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