Mortgages
Interest Only Mortgages
Looking for information on interest-only mortgages? Read our insight to learn what an interest-only mortgage is, how it works, and the pros and cons of this type of mortgage.
Free tool
Mortgage Overpayment Calculator
See how much interest you could save, and how many years you could knock off your mortgage, by paying a little extra each month.
Interest you’d save£28,557
5 yrs 3 mths soonerYour normal payment is about £1,000/mo. Adding £150 a month clears the mortgage in roughly 19 years 9 months and saves the interest above over the life of the loan.
An illustration assuming the rate stays fixed. Check your lender’s annual overpayment limit (often 10% of the balance) before you start. Weigh overpaying against saving or clearing pricier debt first.
Why overpaying works so well
A mortgage charges interest on whatever you still owe. Overpay, and the balance falls faster, so less interest is charged every month from then on. That effect compounds over the years, which is why even a modest £100 or £150 a month can save thousands and bring your mortgage-free date forward.
Before you start
- Check your overpayment limit. Most fixed deals allow up to 10% of the balance a year penalty-free.
- Keep a safety net. Money you overpay is hard to get back, so keep an emergency fund and clear pricier debt first.
- Compare with saving. If a savings account pays more than your mortgage rate, saving may beat overpaying.
Frequently asked questions
Is it worth overpaying my mortgage?
Often, yes. Because a mortgage charges interest on the outstanding balance, every pound you overpay saves you interest for the rest of the term, and it can knock years off. It usually makes most sense when your mortgage rate is higher than the interest you could earn in savings, and once you have cleared any pricier debt and built an emergency fund.
How much can I overpay without a penalty?
Most fixed-rate mortgages let you overpay up to 10% of the outstanding balance each year without an early repayment charge. Go over that limit and you may pay a penalty, so check your specific deal before making large overpayments. On many trackers and standard variable rates there is no limit.
Should I overpay or reduce my term?
They achieve a similar thing. Regular overpayments give you flexibility, you can stop any time, whereas formally shortening the term locks in a higher required payment. Overpaying voluntarily is usually the safer route if your income varies.
Is overpaying better than saving?
Compare the rates. If your mortgage rate is higher than the after-tax interest you could earn on savings, overpaying usually wins. If savings pay more, or you would lose access to money you might need, saving can be the smarter move. It is rarely all-or-nothing.
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