Mortgage overpayment calculator: Can I pay off my home loan early?

SAVVY homeowners could save themselves thousands of pounds and pay off their mortgages years earlier.

When paying off your mortgage you'll usually pay set monthly repayments, which are calculated depending on how much you've borrowed, the interest rate and the period you agree to pay it back over.

Paying more than the set amount can help you to clear your debt quicker than planned and reduce the interest on your loan.

Overpayments can be made using a lump sum or by regular monthly payments.

But there are some things you should take into account before overpaying, such as how much you can repay and penalty charges that could be imposed.

We've put together a guide on whether overpaying on your mortgage is the right choice for you.

Should I overpay my mortgage?

Overpaying on your mortgage can help to reduce your loan and, as a result, cut the amount of interest you pay on it.

It could also give you the chance to underpay in the future, but you should check your lender's policy to see if this is something it'll allow.

What's more, if you're planning to remortgage in the future, then overpaying can reduce your loan-to-value (LTV) ratio so you'll have access to cheaper deals when it comes to doing so.

Keep in mind that your bank or building society will only let you overpay by a certain amount before charging a penalty.

Most lenders cap this at 10% of your total mortgage balance a year, so on a £200,000 mortgage, this would be a maximum overpayment of £20,000 a year.

If you go over this amount you could face charges of between one to five per cent of the amount overpaid.

The only exception is if you're paying an SVR (standard variable rate), which your lender will usually move you on to after the introductory deal ends.

In this case, you can usually overpay by as much as you want but as always, it's worth checking with the lender beforehand.

As a rule of thumb, overpaying is only cost-effective if your mortgage is at a higher interest rate than what you can achieve on your savings after tax.

Whereas if you've got a higher rate on your savings compared to your mortgage, then opt to save instead.

How does mortgage overpayment work?

When you get a mortgage, you agree to a minimum amount to pay back to your lender each month.

Overpaying just means paying more than that, either regularly every month or as a lump sum.

One-off overpayments are less lucrative but could still make a difference. 

Rules about overpayments differ between mortgage products as well as different lenders. 

If you decide mortgage overpayments are right for you, tell your lender you want to make overpayments to reduce your mortgage term.

You might be able to change your mortgage payment online and arrange for the higher amount to be taken by direct debit each month.

Another option is to set up a separate standing order to your mortgage account to make the overpayment.

Mortgage overpayment calculators

If you're thinking about overpaying on your mortgage, it's worth putting the figures into an online calculator to see how much you'll save.

These can tell you how much you'll save in interest payments and how much earlier you'll end up paying off any remaining debt.

We've listed some of the top free calculators available online.

MoneySavingExpert.com

MoneySavingExpert has a free online calculator, which is useful for working out how much you could save if you overpay your mortgage.

You'll need to enter the current amount of mortgage debt you have, the mortgage term and the interest rate you pay.

The results will show how much interest you'll save over the remainder of the term and how many years less you'll need to clear the debt.

Which?

Like MSE's calculator, Which?'s mortgage overpayment tool can be used effortlessly for free.

It can work out how much you might save by overpaying your mortgage, plus how quickly you might pay the loan off compared to your current term.

Again, you'll just need to enter the current amount of mortgage debt you have, the mortgage term and the interest rate you pay.

Lenders

Most big mortgage lenders also offer free mortgage overpayment calculators on their websites.

Nationwide, Halifax, NatWest, Santander, Lloyds Bank and HSBC all offer an early accessible tool.

Again, these work out how much you might save by overpaying your mortgage, plus how quickly you might pay the loan off compared to your current term.