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MasterMath

Mortgage Overpayment Calculator

A 10,000 overpayment one year into a 150,000 mortgage at 4% saves 19,361 in interest and removes 41 payments. The same 10,000 later saves far less.

Currency and number format for

You save in interest

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You save in interest—
New payment—
Payments you remove—
Balance after the overpayment—
Interest without overpaying—
Interest after overpaying—

How this was worked out

    The formula

    recalculate the schedule on the reduced balance, keeping either the term or the payment

    Where it comes from

    An overpayment goes straight to the principal, so all the interest that balance would have generated for the rest of the term disappears with it. You then choose what to do with the saving: shorten the term and keep paying the same, or keep the term and pay less each month.

    How to work it out by hand

    1. Work out the balance still outstanding after the payments made so far
    2. Subtract the overpayment from it
    3. Recalculate the schedule on the new balance
    4. Compare the total interest before and after

    What is worth knowing

    Cutting the term almost always saves more than cutting the payment, and often by a factor of two or three, because you keep attacking the balance at the same rate. Cutting the payment frees up cash flow now and is the right choice if the month is tight. What decides whether to overpay at all is the comparison against your other options: if the mortgage rate is 4% and you have card debt at 22%, the card comes first; if you have no emergency fund, that comes first too. Check for early repayment charges before you do anything, since some deals cap what you can overpay each year.

    Frequently asked questions

    Cut the term or cut the payment?

    Cutting the term saves considerably more interest. Cutting the payment helps cash flow now. This calculator shows both so you can see what the choice costs.

    When does overpaying save the most?

    As early as possible. The overpayment removes interest for every remaining month, so its value falls as the term runs down.

    Should I overpay or invest instead?

    Overpaying is a guaranteed return equal to your mortgage rate, tax free. Investing might beat it but is not guaranteed. Clear expensive debt and build an emergency fund first.

    Are there penalties?

    Often. Many fixed deals allow around 10% of the balance a year without charge and penalise the rest. Check your terms before making a large overpayment.