Should You Overpay Your Mortgage? Why Even £100 a Month Can Make a Real Difference

Yesterday the Bank of England held the base rate at 3.75% for the fourth consecutive time. The decision was expected, but it's still a reminder that we're not in a particularly cheap borrowing environment — and for many homeowners, that raises a very sensible question: should I be overpaying my mortgage while I can?

It's one of the most common things clients ask me about right now, and it's genuinely worth thinking through properly. The short answer is: for the right person in the right circumstances, overpaying your mortgage is one of the most straightforward ways to save a significant sum. Let me walk you through how it works.

What Overpaying Your Mortgage Actually Means

An overpayment is simply paying more than your agreed monthly mortgage payment. If your lender requires £900 a month, you might voluntarily pay £1,000 or £1,100. The extra amount is applied directly to your outstanding balance — not held in a separate pot.

Because mortgage interest is calculated on your remaining balance, reducing that balance means less interest accrues every single month from that point forward. That compounding effect is what makes overpayments so powerful over time.

How Much Could You Actually Save?

Let me put some figures around it. Say you have £150,000 remaining on your mortgage at a rate of 4.5%, with 20 years left to run. Your monthly payment would be roughly £949.

If you overpay by just £100 a month — bringing your payment to £1,049 — you'd clear the mortgage around two and a half years early and save approximately £10,000 in interest over the life of the loan. An extra £100 a month, saving ten thousand pounds. It really does add up.

The exact numbers depend on your own balance, interest rate, and remaining term — but the principle is consistent. Even modest, regular overpayments make a meaningful difference.

Check Your Overpayment Allowance Before You Start

This is the bit most people skip, and it can be an expensive mistake. Most lenders allow you to overpay up to 10% of your outstanding balance each year without penalty. Go beyond that, and you may face an early repayment charge (ERC) — and on a larger mortgage, that can run to several thousand pounds.

If you're on a tracker mortgage or your lender's standard variable rate (SVR), there's often more flexibility — sometimes unlimited overpayments — but always read the terms before assuming.

One useful thing to ask your lender: can previous overpayments build up as a payment reserve? Some lenders allow this — so if you overpay consistently and then hit a difficult month, you can take a payment holiday without it being treated as a missed payment. A handy safety net.

Overpaying vs Keeping Money in Savings — Which is Better?

This is the question I get asked most often, and the honest answer is: it depends. With some easy-access savings accounts currently paying around 4–4.5%, the gap between savings rates and mortgage rates has narrowed considerably.

The key comparison is your mortgage interest rate versus your after-tax savings return. If your mortgage rate is higher than what you'd actually keep from savings after tax, overpaying wins. If it's the other way round — particularly if you're a basic-rate taxpayer with a lower mortgage rate — savings may edge it.

What I would point out, though, is that the return on overpaying is guaranteed. You are saving exactly that interest rate, with certainty. Savings rates can — and do — move around. And higher-rate taxpayers lose 40% of their savings interest to tax, which changes the maths considerably.

When Overpaying Might Not Be Your Best Move

There are situations where I'd gently suggest looking elsewhere first:

• High-interest debt first. Credit cards and personal loans at 15–25% interest are almost always worth clearing before directing extra money at a mortgage sitting at 4–5%.
• Build your emergency fund first. Three to six months' worth of essential outgoings in accessible savings is the foundation. Without that cushion, overpaying creates fragility.
• Maximise matched pension contributions. If your employer matches pension contributions up to a certain level and you're not hitting that threshold, you're leaving free money on the table. That usually beats mortgage overpayments hands down.

Once those boxes are ticked, overpaying your mortgage becomes one of the strongest moves available to most homeowners.

Practical Steps to Get Started

If you're ready to give it a go, here's a straightforward approach:

1. Check your mortgage terms — call your lender or dig out your mortgage offer letter and confirm your annual overpayment allowance and whether any ERCs apply.
2. Choose a sustainable amount — pick something you can comfortably maintain every month. Even £50 is worth doing; consistency matters more than size.
3. Set it up as a standing order — automate it so it goes out with your regular payment and you're not tempted to spend it instead.
4. Ask whether it reduces your payment or your term — most lenders will apply overpayments to reduce your remaining term, which saves more interest overall. If yours reduces the monthly payment by default, ask them to change it.

And if you'd like a hand thinking through whether overpaying is the right move for your particular situation — or whether your money might work harder somewhere else right now — give me a ring. That's exactly the kind of conversation I'm here for.

Kindest regards

Ian

Ian A Moore CeMAP — Director, IM Mortgage Consultancy Limited

Your home may be repossessed if you do not keep up repayments on your mortgage. IM Mortgage Consultancy Limited is authorised and regulated by the Financial Conduct Authority. This article is for general information only and does not constitute mortgage advice; rates and figures quoted were accurate at the time of writing and are subject to change.