Mortgage overpayment questions
Does overpaying always save interest?
On a standard repayment mortgage, an overpayment that reduces the balance saves interest. Later months are charged on a smaller amount. Offset, interest-only, and deals with fees do not always work the same way, so the calculator is an illustration rather than a quote.
When the saving is straightforward
If interest is a percentage of the balance, and the overpayment reduces that balance, the next interest charge is smaller. That is the whole mechanism. It does not depend on a special overpayment product. It is ordinary compound interest running in reverse.
The saving is larger when the rate is higher and when the extra stays in the loan for longer. It is smaller when you are about to remortgage and the new rate is unknown, because the later years of the illustration may never happen at today’s rate.
When the picture changes
On an offset mortgage, cash in the linked account can already be reducing the interest in the same way as an overpayment, while staying accessible. Paying that cash into the loan saves a similar amount of interest and gives up the access. The calculator does not model an offset balance.
On an interest-only mortgage, an overpayment reduces the balance and the interest, but it does not by itself create a repayment schedule that clears the loan. A fee, an early repayment charge, or a product that charges interest on the original amount rather than the current balance can also eat the saving.
Saving interest is not the same as the best use of the money
Overpaying beats leaving the cash in an account that pays less than the mortgage rate, after tax. It can lose to paying off costlier debt, or to a pension contribution that would not otherwise be made. Those comparisons sit outside this site.
Nothing here is financial advice. The figures assume a standard repayment mortgage, monthly interest, and overpayments applied to the balance immediately. Your offer is the document that decides.
Try the figures in the calculator