Thinking about paying off your mortgage early? Whether you're eyeing financial freedom or simply want to cut interest costs, making mortgage overpayments can be a powerful way to reach your goals. But before diving in, it's important to understand how overpayments work and the potential penalties involved.
What Is a Mortgage Overpayment?
A mortgage overpayment is when you pay more than your agreed monthly repayment. This can be done:
As a lump sum (e.g. a bonus or inheritance)
As regular extra payments on top of your monthly direct debit
Overpaying helps to reduce your outstanding balance faster, which can:
Shorten your mortgage term
Reduce the total interest paid over time
Benefits of Overpaying Your Mortgage
Interest savings – The less you owe, the less interest you pay
Mortgage freedom sooner – Clear your debt ahead of schedule
Better remortgage deals – Reducing your loan-to-value (LTV) could unlock lower rates in the future
Know Your Limits: Overpayment Allowances
Most lenders allow you to overpay by up to 10% of your outstanding mortgage balance per year without penalty. However, you will need to check your mortgage terms to confirm your allowance.
Going over this limit may trigger an early repayment charge (ERC), especially during a fixed, tracker, or discounted rate period. Always double-check before making a large payment.
Understanding Early Repayment Charges (ERCs)
ERCs are fees charged by your lender if you repay all or part of your mortgage earlier than agreed. They are usually:
A percentage of your remaining balance
Higher earlier in your mortgage term, and reduce over time
For example, a five-year fixed-rate mortgage might carry an ERC of:
3% in Year 1
1% in Year 5
Even if you're remortgaging to a better deal, ERCs can apply – so it’s vital to calculate if the switch still saves you money overall.
Offset Mortgages: A Flexible Alternative
If you want to use your savings to reduce interest but still need access to the money, an offset mortgage could be worth exploring. Your savings account is linked to your mortgage, reducing the interest charged without actually making overpayments. However, these mortgages aren't always widely available and may come with slightly higher rates
When Overpayments Might Not Be Best
Before overpaying, consider:
Emergency savings – Keep a cash buffer in case of unexpected expenses.
High-interest debts – It may be smarter to pay off credit cards or loans first.
Investment returns – You might earn more by investing your spare cash, depending on your risk tolerance.
Speak to the Experts
Every mortgage is different, and the decision to overpay should be based on your personal circumstances. At Windsor Hill Mortgages, we can help you:
Find flexible mortgage products that suit your financial goals
Understand your lender’s overpayment rules
Assess the cost-effectiveness of early repayments
Speak to our team today and we'll take you through your options.
Whether you’re a first-time buyer or a seasoned property developer our team will find you the very best deal.
Our experienced financial, insurance and mortgage advisors take real pride in offering impartial advice, so you’ll have the peace of mind that your best interests are at the heart of everything we do.
Based in Bath, we enjoy getting to know our clients and listening to their requirements we provide the right financial solutions every time.
