Do You Pay Interest on Mortgage Overpayments?
This guide is for general information only and does not provide financial advice. Check your lender’s terms before overpaying, as early repayment charges may apply. Your home may be repossessed if you do not keep up repayments on your mortgage.
An overpayment is money you pay towards the amount you owe. It reduces your balance, and interest is then charged on the lower balance from the point your lender applies it. When the saving starts depends on how and when your lender applies the overpayment.
Why timing can matter
In this example, the sooner an overpayment reaches your balance, the longer it reduces the interest charged. The table takes a £10,000 one-off overpayment on a £200,000 mortgage at 4.5% with 25 years remaining, made at three different points, and shows the estimated interest saved over the whole term. It assumes your payment stays the same and there are no charges. The calculator works out interest monthly; a lender that works it out daily may give slightly different figures.
| When the £10,000 is paid | Estimated interest saved over the term | Estimated time sooner |
|---|---|---|
| With your next payment | £19,197 | 2 years 2 months |
| In month 7 | £18,578 | 2 years 1 month |
| In month 13 | £17,973 | 2 years 1 month |
In the first year alone, the same £10,000 paid next month would be estimated to reduce the interest charged by about £420.
When your lender recalculates interest
Nationwide says it calculates interest daily, so an overpayment reduces the interest you pay from the following day (see what Nationwide says about its overpayments). Other lenders may work it out differently, so check how yours does it and when an overpayment reaches your balance.
What about early repayment charges?
Going over your lender’s yearly allowance can mean an early repayment charge, which can cancel out some or all of the interest saved. How it is worked out depends on your lender. See is it worth paying an early repayment charge?.
Figures are estimates from this site’s calculator. They assume a repayment mortgage, a rate that stays the same for the whole term and no fees or early repayment charges, and they are illustrations, not forecasts. Try your own figures in the free mortgage overpayment calculator.
If you are unsure whether overpaying suits you, consider speaking to a regulated mortgage adviser.
Questions people ask
Do I pay interest on money I overpay?
An overpayment reduces the balance that interest is charged on, from when your lender applies it. When that is depends on your lender.
How quickly does an overpayment reduce my interest?
It depends on how your lender calculates interest. Nationwide, for example, says it calculates daily (see our Nationwide page). Check your mortgage terms or ask your lender.
Does an overpayment always save interest?
It reduces the interest on your balance, but a charge for going over your allowance could cancel out some of the saving. Check your allowance first.
Related guides
how mortgage overpayments work, what happens if you pay more each month, how many extra payments a year, changing your term when you remortgage. See also how to overpay your mortgage, should I overpay my mortgage? and how much should I overpay?