Mortgage Overpayments: The Real Math

Every mortgage payment does two jobs: pays interest on today's balance, and chips a small amount off the balance itself. Early on, almost all of it is interest. That's why overpayments are so powerful — every extra pound goes straight to the principal, and every future month's interest is charged on a smaller balance.

A worked example

£250,000 borrowed at 5% over 25 years is roughly £1,461/month. Add just £100/month and you pay it off around 3 years earlier — saving over £26,000 in interest. £200/month gets close to 5 years saved.

Why the effect is so big

Interest compounds against you. Every pound you don't pay off keeps earning interest for the lender — for decades. Overpaying is effectively a risk-free, tax-free return equal to your mortgage rate. If your rate is 5%, a £1 overpayment "earns" 5% guaranteed. Few investments beat that after tax on a risk-adjusted basis.

The small print

• Most fixed deals allow up to 10% of the balance per year in overpayments without penalty. Above that, early repayment charges apply.
• Overpayments usually reduce your term, not your monthly payment, unless you ask the lender to recalculate.
• If you have higher-interest debt (credit cards, personal loans), clear that first — the rate is almost always higher than any mortgage.

The single biggest lever most homeowners have is not a better rate — it's paying a bit more, every month, for as long as they can.