Mortgage Overpayment Calculator

Every unit paid above the scheduled instalment goes straight to principal, and the interest that would have accrued on that unit for the rest of the term is never charged. The interest avoided is calculated at the mortgage rate, on the balance actually reduced, which is why the rate matters more to the result than the size of the overpayment does. What the figure is not is a return in the investment sense: nothing is earned, a future cost is removed, and the money is no longer available to do anything else.

Which inputs move the number most

Measured on a common basis (a 1% proportional increase in each input, holding the rest), the ordering at the sample figures used on this page is term first at +2.29%, then rate at +1.56%, then the overpayment at +0.71%, then the principal at +0.29%. Term and rate lead in every configuration swept, from a 0.001% rate to the 30% maximum and from 180 months to 372. Rate looks different again when it is quoted the way rates usually move: a full percentage point added to the rate raises the interest avoided by 27.9% at the sample figures, and by between about 16% and 65% across the 2% to 12% span. That band is an illustration rather than a limit. The proportional jump grows without bound as the starting rate approaches zero: it reaches roughly 119% from a 1% start and around 1,100% from a 0.1% one, and it shrinks steadily at the top end, to about 10% from 18% and 7% from 25%. The rule behind all of those figures is that a percentage point is a larger relative change to a small rate than to a large one. At a rate of zero, which the input also accepts, no interest accrues and none is avoided, so there is no ordering to measure and only the payment and term rows carry information.

The bottom two swap places, and which one leads depends on the size of the overpayment rather than on anything structural. At a small overpayment the overpayment leads the principal (0.71% against 0.29% at the sample figures); at a large one the order reverses (0.28% against 0.72% at an overpayment seven and a half times larger). The whole picture is scale-free: hold the ratio of principal to overpayment constant and the interest avoided is the same fraction of the principal at every price level, 0.3039 of it at the sample rate and term, identical at a tenth of the principal and at a hundred and fifty times it. That is why the months saved and the payoff term read the same in every currency on this page.

Reading the result rows

New Payoff Time is the term the loan now runs, rounded up to a whole month, and Months Saved is the original term less that figure, so the two always add back to the term entered. The underlying payoff term is not a whole number: at the sample figures it is 278.36 months, meaning the final payment is a partial one, and the interest figure is computed on that fractional term rather than on the rounded month. Total Overpayments Paid is the cash committed over the payoff term, counted in every month the loan runs. Setting it against the headline gives the shape of the trade: at the sample figures the interest avoided is a little over one and a half times the extra cash put in, and that multiple falls as the overpayment grows, because each additional unit arrives with less remaining term to work across.

What a single overpayment saves, and when

The same one-off amount removes very different quantities of interest depending on when it lands, because early in the term the balance is largest and so is each month's interest charge. At the sample figures used on this page, a single 10,000 overpayment removes about 45,800 of interest if it is made at the outset, 32,200 after five years, 13,800 after fifteen, and 3,300 after twenty-five, a little over three times as much at the outset as at the fifteen-year mark. The decline is not linear: it tracks the remaining balance and the remaining term together, so it is steepest in the years where both are still large. This calculator models a repeating monthly overpayment from the first month; the figures above are given as context for that pattern rather than as something the tool computes.

Regular monthly overpayment against a lump sum

The same total extra money produces different results depending on how it arrives. A monthly overpayment reduces the balance gradually, so the interest saving builds through the term. A single lump applied at the start reduces the balance immediately, and every month afterwards is charged on the smaller figure. Saving the money first and paying it as one lump later is a third pattern, and it sits below both: the amount is out of the mortgage for the whole saving period, earning nothing against the balance. Monthly overpayment is the easier of the three to budget for and the only one this calculator models.

Term reduction against payment reduction

Lenders that accept overpayments usually apply them in one of two ways. Term reduction keeps the monthly payment where it is and brings the end date forward, which is what this calculator models. Payment reduction keeps the end date where it is and lowers the monthly figure instead. Term reduction removes more interest, because the balance falls and the payment does not, so a larger share of each subsequent payment goes to principal. Payment reduction does not extend the term; it leaves the term as it was and forgoes most of the interest saving in exchange for lower monthly outgoings. Which one applies is often a default set by the lender rather than a choice made at the point of payment, and the two produce materially different figures.

Overpayment limits and fees

Many residential mortgages cap penalty-free overpayments at a share of the outstanding balance each year, and charge a fee on anything above the cap, usually as a percentage of the excess. The cap, the fee, and the way the annual allowance resets all vary by lender, by product type and by jurisdiction. Where a product carries a fixed-rate period, limits during that period tend to be tighter than on a variable product, and offset-style accounts often work differently again, since money held alongside the mortgage reduces the interest charged without being paid off the balance at all. None of this is modelled here: the calculator applies the overpayment in full every month regardless of any allowance.

Where the comparison points elsewhere

The interest avoided by overpaying is a known figure at a known rate, which makes it straightforward to set against other uses of the same money, but the comparison is not a rate comparison. How much interest a unit removes depends on the rate and on how long the balance would otherwise have run, and the second of those often dominates. On a 300,000 mortgage at 6% with thirty years left, 1,000 applied to the balance removes about 4,990 of interest; on the same mortgage with five years left it removes about 350; on a 10,000 card balance at 22% with three years left it removes about 860. A short-dated high-rate balance can remove less interest per unit repaid than a long-dated low-rate one, which is the same remaining-term effect the single-overpayment section above sets out. Where an employer matches workplace retirement contributions, the matched portion is a return on the contribution itself before any investment return is counted. Money used for overpayment is locked into the property and cannot be drawn back without borrowing against it again, which is a different position from the same amount held liquid. And where the expected return elsewhere sits above the mortgage rate, the arithmetic points the other way. Alongside all of that, the position of being mortgage-free is valued differently by different borrowers, and that valuation is outside any calculation.

Overpayment and refinancing

Overpaying lowers the loan-to-value ratio, and lenders commonly price in bands by that ratio. A borrower who crosses below a band boundary through overpayments may find a different set of rates available at the next refinance than the ones on offer at the original ratio. That effect is separate from the interest figure shown here and is not included in it; this calculator prices the interest avoided on the current rate only. The Loan to Value Calculator works the ratio side and reports how far a balance sits from the next band down.

What this calculator does not model

The model holds the interest rate fixed for the whole term, applies the overpayment from the first month and in every month after it, and ignores the timing of payments within each month. It does not model rate changes at the end of a fixed period, overpayment allowances or the fees charged for exceeding them, arrangement or exit fees, payment holidays, or any tax treatment of mortgage interest. It also does not model a lump sum, a start month other than the first, or a payment-reduction arrangement. The figure it produces is the interest difference between two fixed schedules at one rate.