You may be considering overpaying your mortgage but aren’t sure whether it’s the right thing to do. You may not know whether you can make overpayments even if you want to. You might be wondering whether the inflation rate has any bearing on your decision. Or you may be trying to decide if it’s better to save or invest your money instead.
In this blog, we’ll explore all these issues and more, so you can make an informed choice.
Can I overpay on my mortgage?
Overpaying means paying back more than is necessary towards your mortgage, under the terms of your loan agreement. This may involve increasing your monthly payments or making a one-off payment as a lump sum.
The first question to ask yourself is whether you can overpay your mortgage. Most mortgages will allow you to make overpayments. However, many will have penalties if you overpay more than a certain amount. Some may not allow overpayments at all. Check your terms and conditions with your provider to see where you stand. Once you’ve done this, you can decide if you’d like to go for it.
Mortgages you can overpay
Fixed rate and discount variable rate mortgages generally allow you to make overpayments. However, they usually have restrictions on how much you can overpay without incurring a penalty.
Standard variable rate and tracker rate mortgages tend to have fewer restrictions, with some allowing unlimited penalty free overpayments. This can be handy if you want to pay down your mortgage quickly. However, the trade-off for this is not knowing how much your repayments will be from month to month.
Some providers will offer an offset mortgage that allows your savings to be ‘offset’ against your mortgage balance. This means you will not earn any interest on your savings. However, you won’t pay any interest on the portion of your mortgage balance that is offset by the savings. With this type of scheme your savings can remain accessible. It’s important to check your terms and conditions to see if this applies to you though.
How much can I overpay on my mortgage?
The amount you can overpay without a penalty will vary between providers and products. This can apply even when comparing the same type of mortgage at different providers.
For example, some fixed or discount mortgage deals will allow you to pay off up to 10% of your mortgage balance each year without any penalties. Others might allow you to pay off up to 10% of the original loan value. Some will even allow you to pay up to 50% of the original balance over the term of the product.
Variable rate and some tracker rate mortgages can have even higher limits. Some have no overpayment limit at all.
It’s vital to make sure you’re clear on how much you’re allowed to overpay though. Paying off more than you’re allowed could result in fees. These include early repayment charges, which you’ll usually want to avoid.
The Bank Rate
It’s useful to consider how the Bank Rate, set by the Bank of England, has changed over time and how it affects mortgages and savings.
The Bank responded to the financial crisis of 2008 by lowering the Bank Rate to stimulate the economy. From July 2007 to March 2009 the Bank Rate fell from 5.75% to just 0.5%. It then dropped to 0.25% in August 2016 and hovered between 0.25% and 0.75% until early March 2020.
During the Covid pandemic, at the end of March 2020, the Bank reduced the Bank Rate to a historic low of 0.1%. Rates remained low until December 2021, when the Bank started to gradually increase them. Since then, the Bank Rate has continued to fluctuate and is now nearer its historical average, as of August 2025.
As the Bank Rate tends to influence the mortgage and savings interest rates that banks and building societies offer customers, it will affect the rates you’re able to secure. Your decision about whether to overpay your mortgage will therefore likely be linked to this rate. To understand why, read on.
Should I overpay my mortgage when inflation is high?
Broadly speaking, when inflation is high the Bank of England will raise the Bank Rate. The Bank Rate is generally reflected in commercial mortgage and savings rates, which makes borrowing more expensive and saving more attractive. The combined impact of these factors helps bring inflation down.
For a deep dive into how and why this happens, head to our guide to how inflation is measured.
Broadly speaking, if inflation is high, mortgage interest rates are likely to be high as well. This means that if you’re able to overpay your mortgage, this higher interest rate will be applied to a smaller debt.
If you’re on a fixed rate deal, this won’t affect you straight away. However, it’s worth considering what rates will be when your deal ends. If you think they’re likely to be higher than when you fixed, overpaying could put you in a better position when your fixed rate ends. Or you may decide to wait and see what rates are available when your product expires.
Is it better to overpay my mortgage or save?
The main factor here is how your mortgage interest rate compares to the rate of interest you could get on your savings. And that brings us back to the Bank Rate. As we mentioned, if the Bank Rate goes up, it’s likely that mortgage and savings interest rates will rise as well.
Generally, if the rate of interest you’re paying on your mortgage is about the same or higher than the rate you could get on your savings, it might make sense to overpay your mortgage. Essentially, having a smaller outstanding mortgage balance will reduce the amount of interest you’re charged.
Overpaying can also put you in a better position when you come to review your mortgage. By reducing your mortgage balance, you will also reduce your loan to value (LTV). This may mean that when it’s time to choose a new product, you will have better options with lower interest rates available, compared to a higher LTV.
Don’t forget, there are other areas you may want to consider when deciding whether to overpay on your mortgage.
As well as standard savings accounts, you may want to consider savings options such as investments or stocks and shares. You may also want to consider the potential of using spare funds to top-up your pension fund.
Additionally, it’s worth reviewing any other debt you have, such as loans and credit cards. Even if you can get a higher interest rate on your savings than you’re paying on your mortgage, consider where else you might be clocking up interest. It may make more sense to pay off any other debts first than to overpay your mortgage, or to save your money.
Taking a broad overview of your finances will allow you to work out the best plan of action. Think about where you’re currently paying interest and how much it costs you each month or year. Then compare that to how much interest you could generate by saving that money instead over the same period.
If you decide to save instead of overpaying, remember that you may end up having to pay tax on the savings interest you earn. So, make sure you factor this in when you decide what to do.
Bear in mind that if you decide to make overpayments, you don’t want to make your finances too inflexible. Once you make an overpayment you usually won’t be able to get your funds back. Therefore, you need to be sure it’s the right option for you.
If you have a monthly contingency from your income, or an existing savings pot, it’s worth retaining some of it. This could be for emergencies, planned expenses such as home improvements, or even holidays.
How do I overpay?
If you’ve decided overpaying is the right option for you, overpayments can usually be made as either a one-off lump sum, or a regular monthly amount. Over the term of your mortgage, you may make a combination of these.
If you make an overpayment as a lump sum, you’ll usually have the option to reduce your monthly payments or your mortgage term. Reducing your term will save the greatest amount of interest and mean that you become mortgage free quicker. However, you may decide that you would prefer to reduce your monthly payments to free up funds for other things.
If you make regular monthly overpayments, your balance will reduce by the amount of the overpayment. This means that each month you’ll pay a bit less interest as you’ll have a smaller mortgage balance than you would have done without overpaying. Over time this can lead to a significant saving in interest paid and will eventually help to reduce the term of your mortgage.
In summary
There are many things to consider when deciding whether to overpay your mortgage.
Overpaying has the potential to save you a significant amount of interest and reduce the term of your mortgage. However, you need to ensure you’ve thoroughly considered all your options.
When you’re deciding what will work best for you, we’d always suggest speaking to an independent financial advisor before confirming your plan of action.
