What If Your Mortgage Rate Falls and You Keep Paying the Same?
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.
When your rate falls, your payment may fall too, for example when a fixed deal ends and you move to a lower rate. If you keep paying the amount you paid before, the difference works like an overpayment. This page shows how much it could do in one example, as an illustration.
A worked example
Take a £200,000 mortgage over 25 years at 6% for the first two years, with a payment of £1,288.60. After two years the balance is about £192,660 with 23 years left, and the rate falls. If you keep paying £1,288.60 instead of the lower new payment, the difference is an overpayment. The table assumes your lender lets you keep paying the higher amount, the new rate stays the same, and there are no fees or early repayment charges.
| New rate | New payment | Difference you keep paying | Estimated result |
|---|---|---|---|
| 5% | £1,176.01 | £112.58 a month | about £22,288 of interest saved, 3 years 5 months sooner |
| 4% | £1,068.78 | £219.81 a month | about £27,840 of interest saved, 5 years 8 months sooner |
| 3% | £967.19 | £321.40 a month | about £25,388 of interest saved, 7 years 4 months sooner |
Whether you can keep paying the old amount, and whether it is applied as an overpayment, depends on your lender and your deal. Whether your payment changes when your rate falls, and when, depends on your mortgage. Check your mortgage offer or ask your lender.
If your rate rises instead, the same arithmetic works the other way: your payment may rise, and keeping a lower payment would leave a shortfall against the payment due.
Questions worth asking
- Will your lender keep taking the old payment, and will the extra be treated as an overpayment? See how to overpay your mortgage.
- Does your deal have a yearly allowance, and would the extra stay within it?
- Would you rather use the lower payment to free up cash? See shortening your term or lowering your payment.
Figures are estimates from this site’s calculator, using the assumptions stated above each table. 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. This page is general information, not advice on your circumstances.
Questions people ask
Should I keep paying the same when my rate falls?
It depends on your budget, your other priorities and your lender. Keeping the old payment reduces more interest, as the table shows, but a lower payment frees up cash. There is no single right answer.
Will my lender lower my payment automatically when rates fall?
It depends on the product and lender. Check your mortgage offer or ask your lender.
Does this count towards my overpayment allowance?
It may, because the extra is an overpayment. Check how your lender treats it and what your allowance is. See the UK mortgage overpayment cap.
Other ways to look at it
overpaying or an offset mortgage, overpaying or keeping an emergency fund, overpaying or paying off other debt, overpaying before or after your fixed rate ends, overpaying with a variable income. For a first look at whether to overpay at all, see should I overpay my mortgage?