Use the calculator
Try the Mortgage Overpayment Calculator to put these concepts into practice.
Key takeaways
- ✓Most UK fixed-rate mortgages allow overpayments of up to 10% of the outstanding balance per year without ERC
- ✓Interest in the UK is calculated daily on your outstanding balance — overpayments take effect immediately
- ✓On a £242,000 loan at 4.8%, £300/month extra saves approximately £60,000 in interest over the term
- ✓Overpaying reduces your LTV — potentially unlocking better rates at remortgage
- ✓After your fixed term, tracker and SVR mortgages usually allow unlimited overpayments
The 10% rule and early repayment charges
Most UK fixed-rate mortgages allow you to overpay up to 10% of the outstanding balance each year without triggering an Early Repayment Charge (ERC). ERCs are typically 1–5% of the amount overpaid above the allowance.
Example: Outstanding balance of £240,000. Your 10% allowance is £24,000 per year — up to £2,000/month without penalty. Exceeding this triggers an ERC on the excess amount.
The 10% allowance is usually calculated on the balance at the start of each year. Some lenders use calendar years, others use the mortgage anniversary date. Check your specific mortgage offer for the exact terms.
On tracker and standard variable rate (SVR) mortgages, overpayments are usually unlimited with no ERC.
💡 Tip: The period between your old fixed rate expiring and your new fixed rate starting — even a few months on SVR — is an ideal time to make large lump sum overpayments with no penalty.
How UK mortgage interest is calculated
UK mortgage lenders typically calculate interest daily. Each day: Outstanding balance × (Annual rate ÷ 365). This means overpayments take effect the very next day — your daily interest charge drops immediately.
Most UK lenders give you the choice of how overpayments are applied: reduce the remaining term (keeping the payment the same, paying off sooner) or reduce the monthly payment (keeping the term the same). Reducing the term saves more total interest; reducing the payment improves monthly cash flow. When in doubt, choose to reduce the term.
Overpaying vs saving: which is better in the UK?
With UK mortgage rates around 4.5–5.5%, the comparison with savings accounts is nuanced. High-street savings accounts currently offer 4.5–5% on easy access, and ISAs provide the same rates tax-free.
For a basic rate taxpayer, if savings account interest exceeds the mortgage rate after tax, saving can mathematically win. For higher-rate taxpayers (40–45%), the tax drag on savings interest means overpaying the mortgage more often wins.
A balanced approach works for most people: max out the annual ISA allowance (£20,000) in a high-yield cash ISA, then direct surplus funds to mortgage overpayments.
The LTV benefit at remortgage
Overpaying improves your LTV at the end of your fixed term. A lower LTV unlocks better mortgage rates. The difference between the 85% and 75% rate tier can be 0.3–0.5%. On a £200,000 mortgage, that's £600–£1,000/year in interest savings that continues for the entire new fixed term.
If you're currently at 82% LTV and can overpay to get below 80% before remortgaging, the rate improvement at renewal may be worth more than the interest saved during the fixed term itself.
💡 Tip: Before remortgaging, check your current LTV. If you're close to a lower LTV tier, a targeted lump sum overpayment to cross that threshold can permanently reduce your cost of borrowing.
Frequently Asked Questions
Calculators mentioned in this guide
Disclaimer: Calculations are estimates for general guidance only and do not constitute regulated financial advice. Rates and costs vary by lender and property location. Stamp Duty Land Tax figures use England rates — Scotland (LBTT) and Wales (LTT) differ. Always consult an FCA-authorised mortgage adviser.