Mortgage overpayment calculator

There is no single formula for this one, because an overpayment changes the shape of every month that follows it. The calculator runs the mortgage forward month by month:

1. Work out the normal monthly payment for your balance, rate and remaining term using the standard annuity formula.
2. Add your overpayment to that figure to get the total you actually pay each month.
3. For each month, charge one month's interest on the current balance, then take the whole payment off. Whatever is left over after the interest reduces the debt.
4. Repeat until the balance reaches zero, and count the months it took.
5. Compare the total interest paid on that path with the interest you would have paid on the original schedule. The difference is your saving.

The reason the saving is so large relative to the money involved is compounding running in your favour. A £200 overpayment today does not just save you the interest on £200 for one month — it removes £200 from the balance for every remaining month of the mortgage, and it also brings the finish line forward, cutting off the tail of the loan entirely.

What different overpayments do

The returns taper: the first £100 a month saves £21,467, the second £100 adds only £15,771 on top. Overpaying is powerful, but the biggest single gain comes from starting at all.

• It assumes one rate for the whole term. Your actual rate will change at each remortgage. Overpayments made now still reduce the balance you carry into the next deal, so the benefit is real — but the precise pounds will differ.
• It assumes the overpayment shortens the term, not the payment. Many lenders default to reducing your future monthly payment instead, which saves far less interest. You usually have to ask for term reduction explicitly.
• It does not check your early repayment charge. Exceed your annual allowance during a fixed period and the charge can easily wipe out a year of savings.
• It does not model your alternatives. Pension contributions with tax relief and employer matching, clearing credit card debt, or simply holding an emergency fund can all beat overpaying, depending on your circumstances.
• Money paid in is hard to get back. Unless you have an offset mortgage or your lender offers a borrow-back facility, an overpayment is not accessible savings. It is equity in a house.

• Annual allowances, not monthly ones. A 10% allowance is normally measured across a mortgage year against the balance at the start of that year, so it does not reset in January and it shrinks as your balance falls.
• Daily, monthly or annual interest. With daily interest an overpayment starts working immediately. With annual interest calculation it may sit in a holding account until the next anniversary, which changes the timing of the benefit considerably.
• Recalculation timing. Some lenders adjust your payment or term immediately after an overpayment; others do it once a year at statement time. The maths ends up in the same place, but the statements will not match this calculator month by month.
• Minimum overpayment amounts. A few lenders set a minimum, or handle regular standing orders differently from ad-hoc lump sums.
• Offset alternatives. An offset mortgage achieves a similar interest saving while leaving the money accessible in a linked savings account — a genuinely different product rather than a variation on overpaying.

Overpaying is one of the few mortgage decisions you can generally make without advice, provided you have checked your allowance and kept an emergency fund. It is worth a conversation if you are within a fixed period and want to overpay more than the allowance; if you are weighing overpaying against an offset mortgage; if you are due a large lump sum and want to know whether to use it now or at the next remortgage; or if reducing the balance would drop you into a lower loan-to-value band before your deal ends.

That last point is often overlooked and can be worth more than the interest saving itself. Overpaying just enough to move from 82% to 79% loan-to-value before you remortgage can unlock a materially cheaper rate on the entire balance.