Remortgaging to a Shorter Term or Overpaying: What Is the Difference?
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.
One way to clear a mortgage sooner is to choose a shorter term when you remortgage. Another is to keep the longer term and overpay. A shorter term sets a higher required payment, while an overpayment is optional if your mortgage allows overpayments, so you may be able to reduce or stop it, although charges may apply above any allowance. A higher required payment commits you to paying more every month, whatever happens to your income. This page shows the numbers in one example.
A worked example
Take a £200,000 balance at 4.5%, assuming the same rate for each term and ignoring fees.
| Term | Required monthly payment | Estimated total interest |
|---|---|---|
| 25 years | £1,111.66 | £133,501 |
| 20 years | £1,265.30 | £103,672 |
| 15 years | £1,529.99 | £75,397 |
If you kept the 25-year term and paid the same total each month as the 20-year payment (an overpayment of £153.64 a month), the estimated interest would be £103,672, close to the 20-year row, because the amount paid each month is the same and the rate is assumed constant. The extra part is not required, so it could be reduced or stopped if your mortgage allows, and the result would then change. This overpayment is estimated to clear the mortgage in 20 years.
Questions worth asking
- Could you afford the higher required payment if your circumstances changed?
- What are the overpayment limits and charges on the mortgage you are considering? See the UK mortgage overpayment cap.
- Would you want the option to stop overpaying in a lean month? See overpaying with a variable income.
Figures are estimates from this site’s calculator, using the assumptions stated above each table. The rates, fees and property values shown are examples, not figures that are available to you. They are illustrations, not forecasts. Try your own figures in the free mortgage overpayment calculator.
If you are thinking about remortgaging or overpaying, consider speaking to a regulated mortgage adviser. This page is general information, not advice on your circumstances.
Questions people ask
Is a shorter mortgage term better than overpaying?
A shorter term sets a higher required payment, while overpaying is optional if your mortgage allows it. Which suits you depends on your budget and on the terms of your mortgage, including any overpayment limits and charges.
Can I change my term without remortgaging?
It depends on your lender and mortgage. Check your mortgage terms or ask your lender.
Does a shorter term cost less interest?
In the example above, yes. With the same rate assumed for each term, the balance falls faster, so less interest is charged, but the required payment is higher. Rates and fees on real mortgages can differ by term.
Other ways to look at it
remortgaging or overpaying, what a lower mortgage rate could save, remortgage fees and the break-even point, overpaying before you remortgage and loan-to-value, what your payment could be when your deal ends. For how overpayments and remortgaging interact more generally, see what happens to overpayments when you remortgage and how overpayments affect your remortgage rate.