How much will overpaying save?

It depends on your mortgage rate versus the after-tax return you can earn on savings. If your mortgage rate is higher than what you'd earn after tax on savings, overpaying is usually better. This calculator factors in your tax band, Personal Savings Allowance, and ISA tax-free status to give you a personalised answer.

You tell us how much spare cash you have (a lump sum and/or monthly surplus). We then compare two scenarios: (A) using that money to overpay your mortgage, reducing the interest you owe, versus (B) depositing it into your savings accounts and earning interest. We factor in tax on savings interest, your Personal Savings Allowance, ISA tax-free status, and any Early Repayment Charges on your mortgage. The result tells you which option leaves you better off.

The Personal Savings Allowance (PSA) lets you earn interest tax-free up to a limit based on your tax band. Basic rate taxpayers get £1,000, higher rate taxpayers get £500, and additional rate taxpayers get £0. Interest earned within your PSA is not taxed, which can make savings more attractive. If you already earn interest from other accounts, that uses up your PSA — which is why we ask about existing savings interest.

Most fixed rate mortgages allow you to overpay up to 10% of the outstanding balance per year without incurring an Early Repayment Charge (ERC). This is often called the ERC-free allowance. Check your mortgage terms — some lenders offer different allowance percentages or calculate it differently.

With most lenders, overpaying a capital and interest mortgage reduces the term (you pay it off sooner) while keeping monthly payments the same. Some lenders offer the option to reduce monthly payments instead. Interest-only mortgages work differently — overpayments directly reduce the outstanding balance.

ISA interest is completely tax-free, making ISAs more competitive against mortgage overpayments. If your ISA rate is close to or above your mortgage rate, saving in an ISA may be better. This calculator accounts for ISA tax-free status automatically.

Yes. Financial advisers generally recommend keeping 3-6 months of essential expenses in an easily accessible savings account before making mortgage overpayments. Once you overpay your mortgage, you typically cannot get that money back without remortgaging.

Early Repayment Charges (ERCs) are fees charged by your lender if you repay more than your allowed overpayment amount during a fixed or discounted rate period. ERCs are typically 1-5% of the excess amount. This calculator includes full ERC modelling to show whether overpaying above your allowance is still worthwhile.

Savings interest outside ISAs is taxable. Basic rate taxpayers pay 20% tax on interest above their £1,000 PSA. Higher rate taxpayers pay 40% above their £500 PSA. Additional rate taxpayers pay 45% on all interest. Joint account interest is split 50/50 between partners for tax purposes.

Higher rate taxpayers often benefit more from overpaying because their Personal Savings Allowance is only £500 and savings interest above that is taxed at 40%. This means the effective return on savings is significantly reduced. ISAs remain tax-free regardless of tax band, so maximising ISA contributions first is usually wise.