See how much interest you save — and years you cut — by overpaying your mortgage.
How your outstanding balance reduces with and without overpayments.
| Year | Balance (Base) | Balance (Overpay) | Interest Paid (Base) | Interest Paid (Overpay) |
|---|
When you make an overpayment on your mortgage — paying more than your required monthly amount — the extra money goes directly toward reducing your outstanding principal. Because mortgage interest is calculated on the remaining balance, a lower principal means less interest accrues each month. This creates a compounding effect: overpaying early saves significantly more than overpaying later, because you eliminate years of future interest charges.
For example, on a $300,000 30-year mortgage at 7% interest, an extra $200 per month from the start could shave over 5 years off your loan term and save more than $60,000 in interest. The same $200/month starting in year 10 saves considerably less — around $30,000 — because a decade of interest has already been paid and the remaining balance is lower.
Regular overpayments involve paying a fixed extra amount each month on top of your standard payment. This is the simplest approach and maximizes interest savings because the benefit compounds over the entire remaining loan term. Most lenders allow up to 10% of the outstanding balance in overpayments per year without penalty.
Lump sum overpayments involve making a one-time large payment — perhaps from a bonus, inheritance, or savings windfall. A single $10,000 lump sum payment early in a 30-year mortgage can save $25,000-$40,000 in interest depending on your rate. This calculator lets you model both approaches.
The classic financial debate: overpay your mortgage or invest the extra money? The answer depends on your mortgage interest rate versus expected investment returns. If your mortgage rate is 7% and the stock market historically returns 8-10% annually, investing may come out ahead mathematically — but with more risk and volatility. Overpaying your mortgage provides a guaranteed, risk-free return equal to your interest rate. Many financial advisors recommend overpaying if your rate is above 5-6%, and investing if it is below 4%.
Before overpaying, ensure you have 3-6 months of expenses in an emergency fund, no high-interest debt (credit cards, personal loans), and check your mortgage for early repayment charges (ERCs) — some fixed-rate deals penalize overpayments beyond 10% of the balance per year.