Mortgage overpayments help you pay off your mortgage sooner and reduce the amount of interest you pay.
Research shows that if a borrower took out a £200,000 mortgage over a 25‐year term, they could save £1,146 in interest by making a monthly £100 overpayment, becoming mortgage‐free four months earlier.
Those who can make a £100 overpayment each month on a £200,000 mortgage could save £9,948 in interest and reduce their mortgage term by three years in the process.
Those with a £500,000 mortgage making a £100 overpayment, could save £10,000 in interest, becoming mortgage‐free almost 17 months earlier.
The combination of paying off capital and consequential reduction in interest results in the time reduction.
How much can I overpay?
You should always check the terms and conditions of your mortgage. But, most mortgages will set a limit on how much you can overpay a year, especially on fixed, tracker and discount deals.
This is normally around 10% of your balance in each year of the deal. Some may be less, or more so always check first.
If you go over this limit, your lender might make you pay an early repayment charge (ERC), which can also apply if you pay off your mortgage early.
Before you make any overpayments, find out the limits and fees by asking your lender, checking your paperwork or looking online.