More than a third of mortgage-holders have overpaid on their home loan in the past year, Which? research shows.
By opting to overpay, homeowners with spare cash are potentially cutting months or even years off their mortgage term, and saving thousands in interest payments.
Here, we reveal just how much you could save based on how much you overpaid by, and compare that with the amount you'd earn in savings interest.
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In July, we asked 1,617 members of the public whether they overpay on their mortgage.
Two thirds of mortgage-holders (64%) told us they hadn't overpaid in the last 12 months, but 36% had.
Overall, 25% of homeowners in our survey had overpaid on a monthly basis, while 10% said they did so as a one-off payment.
In today's high interest environment where the average two-year fixed rate is 6.36% and a five-year fix is 5.9%, overpaying your mortgage can be a great way to save money over the long term.
While you won't feel any benefit immediately, you'll pay back the loan quicker and pay less interest overall.
A quarter of mortgage-holders told us they overpay on a monthly basis.
Doing so can make a significant difference to the overall cost of your mortgage – even overpayments of just £5 a month can save you thousands.
The table shows how much you could theoretically save if you overpaid a set amount each month. We've calculated the figures based on a £200,000 mortgage with a 25-year term and interest rate of 6.36%.
| Monthly overpayment | Total amount paid back over mortgage term | Total amount saved over mortgage term | Time taken off mortgage term |
|---|---|---|---|
| £0 | £392,101 | £0 | None |
| £5 | £397,744 | £2,147 | 3 months |
| £25 | £389,652 | £10,239 | 1 year, 1 month |
| £50 | £380,520 | £19,371 | 2 years, 1 month |
| £100 | £364,885 | £35,006 | 3 years, 9 months |
| £250 | £331,667 | £68,224 | 7 years, 6 months |
The interest you pay will vary depending on the deal you've signed up to and the length of your fixed term. But the above table shows how extra overpayments can make a substantial difference.
One in 10 told us they've overpaid by putting down a lump sum.
Putting down hundreds or thousands of pounds extra in one go isn't something many can afford to do. But there are big benefits for those who can.
Based on a £200,000 mortgage over 25 years with an interest rate of 6.36%, you could theoretically make the following savings:
| Lump sum overpayment | Total amount saved over mortgage term | Time taken off mortgage term |
| £2,500 | £9,390 | 8 months |
| £5,000 | £18,250 | 1 year and 5 months |
| £10,000 | £34,540 | 2 years and 9 months |
We've looked at how lump sum overpayments can erode your mortgage length and cost, but what if you put the money into a savings account instead?
Currently, the best one-year savings accounts offer rates just above 6%, meaning that a lump sum of £2,500 will gain about £150 in interest in the space of a year.
It's possible to get much better yields, but you'd need to lock your money away for longer. Saving it for five years will give you the best rate:
| Account type (best rate) | Interest on £2,500 deposit | Interest on £5,000 deposit | Interest on £10,000 deposit |
| One-year (6.11% - Union Bank of India UK) | £157 | £314 | £628 |
| Two-year (6.05% - Union Bank of India UK) | £321 | £641 | £1,283 |
| Three-year (5.97% - JN Bank) | £489 | £978 | £1,957 |
| Five-year (5.8% - JN Bank) | £839 | £1,678 | £3,355 |
So there are some healthy interest earnings to be had, but remember they will be taxed if they surpass your personal savings allowance threshold.
Those trying to steer clear of the taxman can put up to £20,000 into an Isa each year. The leading one-year fixed Isa with Charter Savings Bank currently offers 5.72% AER. There are also numerous multi-year deals available across the market.
For a borrower with a £200,000 mortgage on the average two-year fixed rate of 6.36% and a 25-year term, overpaying by £100 a month would save £35,006 in interest. The mortgage debt would also be cleared three years and nine months earlier.
In contrast, putting £100 a month into a savings account paying the average easy-access rate (3.2%) over the same period of time would see you earn £10,953 in interest.
Our mortgage overpayment calculator can help you get a broad idea of how regular extra payments could impact your loan.
To get started, enter your balance, term, interest rate and proposed overpayment.
For an accurate picture of how overpaying could affect your balance and term, speak to your mortgage lender.
Small to medium-sized overpayments are unlikely to trigger a penalty, but make sure you’re aware of your lender's early repayment charge (ERC) threshold before making hefty overpayments.
This is a sanction imposed by providers if borrowers overpay by more than it allows, or pay off the whole loan too early. The vast majority of lenders let you pay up to 10% extra each year.
For example, someone with £200,000 remaining could overpay by £19,999 in one year without facing a penalty.
The extent of the penalty varies depending on the lender and terms of your mortgage. It's usually a percentage of the outstanding mortgage – typically between 1% and 5%.
Earlier this year, NatWest extended its ERC threshold to 20%, doubling the amount borrowers can overpay each year before facing a penalty.
So far, it's still the only lender to do so.
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