The Scenario
Let's look at a typical UK mortgage:
- Mortgage amount: £200,000
- Interest rate: 4.5% fixed
- Term: 25 years
- Standard monthly payment: £1,112
Without Overpayments
With the standard payment of £1,112 per month, you would:
- Pay off the mortgage in exactly 25 years
- Make 300 monthly payments
- Pay a total of £333,580
- Pay £133,580 in interest over the life of the mortgage
With £100 Monthly Overpayments
Now, let's add just £100 to each monthly payment, bringing your total to £1,212:
- Pay off the mortgage in 20 years and 2 months
- Make 242 monthly payments
- Pay a total of £293,304
- Pay £93,304 in interest
The Savings
- Time saved: 4 years and 10 months
- Interest saved: £40,276
- Total extra paid: £24,200 (242 months × £100)
- Net benefit: £16,076 saved
Why Does This Work?
Mortgage overpayments work so effectively because:
- Reduced principal: Every overpayment reduces your outstanding balance immediately
- Less interest: With a lower balance, you pay less interest each month
- Compound effect: The savings accelerate over time as more of each payment goes toward principal
Important Considerations
Before you start overpaying, make sure to:
- Check your mortgage terms: Most lenders allow up to 10% overpayment per year without penalties
- Confirm there are no early repayment charges: Some fixed-rate mortgages have restrictions
- Build an emergency fund first: Ensure you have 3-6 months of expenses saved before overpaying
- Consider other debts: Pay off higher-interest debts (credit cards, personal loans) first
- Don't forget your pension: Balance mortgage overpayments with pension contributions
How to Start Overpaying
Getting started is usually straightforward:
- Contact your mortgage lender to confirm overpayment rules
- Set up a standing order for the extra amount
- Request an updated mortgage statement annually to see your progress
- Consider increasing overpayments when you get a pay rise or bonus
Try It Yourself
Want to see how overpayments could work for your mortgage? Use our Mortgage Overpayment Calculator to see your potential savings.
Pro Tip: Even £50 per month can make a significant difference. Start small and increase as your finances allow. The key is consistency.
The Bottom Line
A £100 monthly overpayment might seem modest, but over the life of your mortgage, it can save you nearly 5 years of payments and over £40,000 in interest. That's money that could go toward your retirement, your children's education, or simply enjoying life mortgage-free years earlier.
Remember, every extra pound you pay goes directly toward reducing your mortgage balance. Even if you can't afford £100 per month, any amount helps. The sooner you start, the more you'll save.