Mortgage overpayment questions
Is there a limit on extra mortgage payments?
Many fixed-rate deals allow penalty-free overpayments of around 10% of the outstanding balance each year. Pay more than the allowance, or clear the loan during the fix, and an early repayment charge can apply. The allowance is in your offer, not in a general rule.
The 10% allowance
On a lot of UK fixed rates the penalty-free allowance is 10% of the balance, measured once a year — sometimes on the balance at the start of the year, sometimes on the original loan. A £200,000 balance at that sort of allowance is about £20,000 of overpayments before a charge. Tracker and standard variable rates are often unlimited, but not always.
Monthly extras and lump sums usually share the same allowance. Ten months of a small extra plus one lump sum can cross the line even when each payment looked modest. Unused allowance rarely rolls into the next year.
Early repayment charges
An early repayment charge is a fee for leaving a deal early, or for overpaying past the allowance. It is often a few percent of the amount repaid, and it often steps down each year of the fix. A charge on a large lump sum can wipe out the interest the overpayment would have saved.
This calculator does not subtract an early repayment charge. If a charge might apply, price it separately and only treat the overpayment as worthwhile if the interest saved is clearly larger.
Before you send the money
Read the overpayment clause in the mortgage offer. Note the percentage, what balance it is calculated on, which dates the year runs between, and whether a charge is a percentage of the excess only.
If you are inside a fix and close to the allowance, waiting until the deal ends is sometimes cheaper than paying the charge. Once the loan is on a follow-on rate, check the new terms — the allowance can change at the same moment the rate does.
Try the figures in the calculator