How to Use This Tool
Enter the loan and what you can overpay. Everything below comes from running the amortisation month by month, which is what a lender actually does, rather than from a shortcut formula.
Timing beats size
Interest is charged on the balance you still owe, so a pound removed early stops charging interest for every remaining month. A pound removed near the end has almost no months left to work in. On a 300,000 loan at 6.5% over 30 years:
One 10,000 lump sum, interest saved month 1 53,602 5.36x the money paid month 61 37,116 3.71x month 121 24,692 2.47x month 181 15,426 1.54x month 241 8,569 0.86x
The last row is worth noticing on its own: by month 241, the lump sum no longer even returns its own value in saved interest. Before that point it more than pays for itself.
The return per pound falls as you overpay more
This one runs against intuition. Bigger overpayments always save more in total, but each unit saves less:
extra/month interest saved total extra saved per 1
50 33,582 16,650 2.02
100 60,995 31,100 1.96
200 103,449 55,200 1.87
300 135,115 74,700 1.81
500 179,759 104,672 1.72
1000 241,162 152,000 1.59
The "total extra" column is slightly less than the monthly figure times the number of months, because the last payment is capped at whatever balance is actually left — you cannot overpay a loan that is already cleared.
The reason is that heavy overpayment collapses the term, and a shorter remaining loan has less future interest left for the next pound to cancel. Overpaying 1,000 a month clears the loan in 153 months instead of 360, so most of those pounds are working against a loan that is nearly gone. The practical reading is that a modest, sustainable overpayment gets you most of the efficiency; going harder is still worth it in absolute terms, just less so per pound.
What waiting costs
Overpaying 200 a month from the start saves 103,449. Starting five years later saves 66,944. Over those five years you kept 12,000 that you would otherwise have paid in — and gave up 36,505 of interest savings. The net loss is 24,505, which is three times what you held on to.
Before you do it
Three things this calculation deliberately does not know about.
- Early repayment charges. Many fixed-rate deals cap penalty-free overpayment, often around 10% of the balance a year. Exceeding it can wipe out the saving.
- Whether investing beats it. Overpaying is a guaranteed, tax-free return equal to your mortgage rate. That is a genuinely good return — but if your rate is low and you have no emergency fund or you carry higher-rate debt, those come first.
- Term versus payment. Some lenders apply overpayments by reducing your monthly payment rather than the term. That saves far less. If the option exists, reducing the term is what these figures assume.
General information rather than financial advice, and it ignores any tax treatment of mortgage interest where that applies.
