How do mortgage overpayments work?
Mortgage overpayments reduce the outstanding balance faster than scheduled. Because interest is charged on the balance, every overpayment reduces future interest as well as the debt itself. This compounding effect is why a modest monthly overpayment can cut years from a mortgage term.
Early repayment charges explained
Many fixed-rate mortgages allow annual overpayments up to a set limit, often 10% of the outstanding balance. Payments above that limit can trigger an early repayment charge. Check whether your lender measures the allowance by calendar year, mortgage year, or product year before making a large lump sum payment.
Offset mortgages vs overpayments
An offset mortgage links savings to your mortgage balance. You do not usually earn interest on the linked savings, but the lender charges mortgage interest on a lower net balance. This can offer flexibility if you want to reduce interest while keeping access to cash, whereas normal overpayments may be harder to withdraw later.