Should you overpay your mortgage?
If you have spare cash left over at the end of the month, should you overpay your mortgage, or would savings or your pension be a better home for your money?
Ruth Emery
Almost a quarter (23%) of mortgage holders are overpaying their mortgage by an average of £221 a month, according to research by Barclays.
The bank found that those overpaying hoped that by cutting their interest payments they would reduce their term by about four years.
Mortgage rates have risen over the past few years, hitting their highest levels in 2023 since the 2008 financial crisis.
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While the Bank of England has cut interest rates several times in 2024 and 2025, average two-year and five-year fixed mortgage deals are still above 5%, according to Moneyfacts.
It means homeowners that previously took out a five-year fix in 2020 when mortgage rates were as low as 1% or 2% face much higher payments when they remortgage this year.
An estimated one million customers have fixed-rate mortgages due to come to an end in 2025, with many having to pay more expensive mortgage bills.
Lots of homeowners have already remortgaged onto higher mortgage rates compared to their previous deals.
Whether you’ve got an expensive remortgage coming up, or are already forking out higher home loan payments, it could make sense to overpay your mortgage.
Overpaying your mortgage could be particularly attractive to the rising numbers of older borrowers, in an effort to pay off the debt before retirement.
Analysis of official government housing data reveals that as buyers are being forced to take on longer mortgage terms later in life, they are increasingly likely to carry debt into retirement – or beyond.
Mortgage app Sprive found that of the 975,000 first-time buyers in 2023/24, 827,000 bought with a mortgage and of these, 11.5% were aged 45 or over. That’s almost triple the figure (3.6%) in 2019/20.
In 2023/24, around 16,000 of first-time buyers, purchasing with a mortgage, (1.6%) were over 65. In 2019/20 this number was not significant enough to record.
Furthermore, most of these buyers are not just arriving late to the ladder, they’re also locking themselves into decades of debt.
In 2023/24, 702,000 first-time buyers – that’s 84.9% – took on mortgage terms of more than 25 years. Of these, almost a third (30.3%) – equivalent to 250,000 people – committed to 35 years or more.
In total, Sprive’s analysis found that at least 547,000 of 2024’s first-time buyers will be paying their mortgages in their 60s – that’s two thirds (66%) – while a minimum of one in 20 (26,000 of last year’s first-time buyers) will still be in housing debt in their 70s, unless they choose to overpay and clear the debt sooner.
Overpaying is an option for those who have spare cash in savings or left over at the end of the month.
Jatin Patel, head of mortgages, savings and insurance at Barclays, comments: "For mortgage holders fortunate enough to be able to make overpayments, it can be a great way to reduce the length of your loan term, or minimise the impact of possible rate shocks coming after a lower fixed deal.
“It’s important to always weigh up the cost savings with other financial goals and commitments, as well as potential early repayment fees.”
We look at how overpaying can cut your overall mortgage bill and make you mortgage-free faster - or whether the spare cash would be better off somewhere else, such as in your pension or repaying other debts.
Check out our mortgage overpayment calculator to see how overpayments can reduce your mortgage balance.
Should you overpay your mortgage?
Before deciding to overpay your mortgage, there are several considerations, says Jo Jingree, MD of mortgage advice firm Mortgage Confidence.
Chief among them, she says, is whether you have sufficient savings to weather a financial emergency. Jingree explains: “Overpaying your mortgage is a fantastic idea but only if you have a good level of savings first and foremost.
"Also consider if your lender will charge you an early repayment charge (ERC) for the overpayment – most lenders allow overpayments of up to 10%, or even 20%, of your balance per year but not all, so always check before you overpay.”
What to do before overpaying your mortgage
1. Pay off high-interest debts
Anyone thinking about overpaying on their mortgage should first pay down expensive debt, such as credit card bills or overdrafts, says Laura Suter, head of personal finance at AJ Bell.
If you have savings and also interest-bearing debts, it will almost always make sense to use the savings to pay off the debts as they will cost you more than you’ll save by ploughing money into your mortgage.
Example:
Someone who has £1,000 in an account earning 4% interest, but owes £1,000 on a credit card at 19.9%. Over a year you would earn £40.74 interest on your savings, but you would have to pay £93 in interest on your credit card, even if you paid off £100 a month.
So, the most profitable option is to use your savings to clear the debt and avoid paying interest at such a high rate.
2. Create a rainy-day fund
After you've paid off any expensive debts, you should build up a cash buffer to cover between three and six months of expenses to fall back on if you hit an expected financial bump in the road.
Once you've paid money into your mortgage, you usually can’t get it back, so ensure you have enough in your emergency savings fund first. It’s wise to keep money in an easy-access account so you can withdraw it when you need it, for events such as a broken boiler or car repairs.
3. Check your mortgage provider allows overpayments
If you have a fixed-rate or a discounted-rate mortgage it is likely to have early repayment charges that could be triggered by overpayments. Those fees could easily wipe out any interest savings. So, it's important to check what your lender’s rules are on overpayments before you start making them.
Many lenders will allow you to overpay 10% of your outstanding mortgage debt each year. If you are on a variable-rate mortgage you may be able to overpay more. You can usually make overpayments by increasing your monthly direct debit or by making one-off transfers.
Those on a standard variable rate – to which a mortgage reverts after a fixed term expires – will typically have no restrictions on overpaying. Though you should check with your lender first.
4. Consider adjusting your mortgage term
Instead of overpaying, when it is time to remortgage, it is possible to adjust the terms of a mortgage to shorten the length – meaning you pay it off sooner.
The impact will be higher monthly repayments but you’ll pay the loan off faster. However, this isn’t as flexible as overpaying, where you can vary the amounts you overpay each month.
Benefits of overpaying your mortgage
The sooner you pay off the loan, the less interest you will pay. Overpaying will help to drive down the actual mortgage balance on which you are charged interest and help you pay it off faster.
With many people still benefiting from cheaper loans at the moment it could make a lot of sense for borrowers to think about making the most of those low rates.
“Overpaying each month, even if it is as little as £100, will likely save you money in the long run,” says Brian Murphy, head of lending at Mortgage Advice Bureau. “It also offers you more flexibility if you come into a situation where you need that extra cash – you can simply lower your payment back to the pre-agreed amount.
“Paying in one large lump sum will likely help you clear the mortgage faster and will certainly reduce the interest you are paying.”
Nicholas Mendes, mortgage technical manager at John Charcol, agrees: "By making extra payments towards your mortgage principal, you can reduce the outstanding balance faster and pay less interest in the long run."
Example:
Someone who borrowed £200,000 over 25 years, with an interest rate of 4.5%, would have mortgage repayments of £1,111 a month.
- Overpaying by £200 a month would save you around £36,281 in interest and see you pay your mortgage off six years earlier than planned.
- Overpaying by £100 a month would save you around £21,142 in interest and see you pay your mortgage off three years and six months earlier than planned.
Mendes adds: “As you make mortgage overpayments, you're effectively building equity in your home at an accelerated rate. Increased equity provides you with more financial stability, whether you decide to move home or release equity for home improvements.
“By reducing your outstanding mortgage balance, you'll be better prepared to handle market fluctuations. When interest rates rise, having a lower outstanding balance can cushion the impact on your monthly mortgage payments.”
Using some of your savings to reduce your mortgage debt might also benefit you if it places you into a lower loan-to-value (LTV) bracket.
For most lenders, the cheapest mortgage rates are offered to those with an LTV of 60% or less. So if your LTV was just above that, using savings to pay off some of the mortgage means your LTV could fall to 60% or below, and you may benefit from a reduced rate of interest when you next remortgage.
Mortgage overpayments or higher pension contributions?
There are many reasons why putting extra money into your pension might make more sense than making mortgage overpayments.
“Money that's put into a pension will benefit from tax relief. It also benefits from being invested in the stock market for a long period of time, enjoying the magic of compound interest and the possibility of riding out any volatility in the markets,” says Karen Noye, mortgage expert at the wealth manager Quilter.
The tax relief in itself is valuable. Basic-rate taxpayers get a 20% tax break for paying into a pension, while higher and additional-rate taxpayers can claim 40% or 45% respectively.
Plus, your money gets to grow tax-free. By prioritising mortgage contributions earlier on in life, you could be giving up valuable investment growth.
The amount your pension grows each year depends how it is invested. But a recent study by the pension provider PensionBee revealed that pension funds have been delivering an average annual growth of nearly 8% over five years for those 30 years from retirement.
“Even if pensions grow between 2% and 3% a year, over a long period and with a larger amount in the pot, this does add up,” says Murphy from the Mortgage Advice Bureau.
Additionally, mortgage rates have fallen this year – partly due to President Trump’s tariffs – and are likely to drop further in the months ahead. So, pension returns could be higher than mortgage interest.
“Investing in the stock market has historically given the greater return particularly when invested via a tax-efficient product like a pension,” says Noye. “Therefore together the power of tax relief and fund growth over a long-term horizon may make it better to allocate additional funds to your pension especially if you are paying more than just basic-rate income tax.”
How do I overpay my mortgage?
If you’ve worked out that overpaying your mortgage is the best option for your spare cash, and you’re clear on how much you can overpay without penalty, it’s time to plan your overpayments.
You might have already been in touch with your lender to discuss the limits but it’s important to make them aware you’ll be overpaying, by how much and when.
You can either pay a lump sum to your mortgage account or set up regular payments to be made.
Can you overpay on an interest-only mortgage?
Interest-only mortgages normally allow you to make overpayments either as a lump sum or through increased monthly instalments.
In most cases the capital won’t reduce, so you will still be paying interest on the whole borrowed amount every month.
Yet the overpayments should directly reduce the outstanding loan balance, making the final repayment amount smaller.
Like a repayment mortgage, if your existing loan is still within the fixed period you will need to be mindful of overpayment limits so you don’t trigger an ERC.
Should I overpay my mortgage monthly or yearly?
Chipping away at the overall amount you borrowed means reducing the amount of interest you pay.
So if you have a lump sum at the beginning of the year then that’s ideal. But if you can’t afford to do that, a monthly overpayment is the next best thing.
Speak to your lender or broker about your plans before going ahead.
Should you overpay your mortgage? The verdict
As with all financial matters, there is no one-size-fits-all answer. What you do will depend on your priorities, circumstances and appetite for risk.
If you think ultra-low mortgage rates might make a comeback, then putting the money towards your pension and letting interest compound might be more appealing than paying your mortgage off quickly.
If you think you might need this extra cash for any reason in the near term, then keeping it in a savings account that you can access easily may make more sense.
Factors as varied as your age, mortgage term, mortgage product and available savings rates will have a bearing on the calculations. If you’re confused or unsure, consider taking expert advice before making these decisions.
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Holly Thomas is a freelance financial journalist covering personal finance and investments.
She has written for a number of papers, including The Times, The Sunday Times and the Daily Mail.
Previously she worked as deputy personal finance editor at The Sunday Times, Money Editor at the Daily/Sunday Express and also at Financial Times Business.
She has won Investment Freelance Journalist of the Year at the Aegon Asset Management Media Awards in November 2021.
- Ruth EmeryContributing editor
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