What this calculator does
Takes current balance, interest rate, remaining term, and monthly overpayment amount. Returns interest saved, term reduction, and a year-by-year balance comparison.
The formula
Without overpayment — standard amortisation:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where:
P = outstanding balance
r = monthly interest rate (annual rate / 12)
n = remaining months (years × 12)
With overpayment — iterative monthly calculation:
Each month: balance = balance × (1 + r) − (M + overpayment)
Term ends when balance ≤ 0
Interest saved = total interest without overpayment
− total interest with overpayment
Note: most lenders allow up to 10% of the outstanding balance per year
as overpayments without an early repayment charge (ERC).
This calculator does not enforce that limit — check with your lender.
Assumptions
- The overpayment amount is made every month consistently for the duration of the term.
- The interest rate is fixed for the comparison period — variable rate mortgages will produce different outcomes.
- Overpayments reduce the outstanding balance immediately each month, which is how most UK lenders process them.
- No early repayment charges are applied in the model.
Data sources
No external regulatory data sources are used. This calculator applies a standard mortgage amortisation formula with iterative balance reduction for the overpayment scenario.
Limitations
- Does not check or enforce ERC limits — typically 10% of the outstanding balance per year is allowed without charge, but this varies by lender and product.
- Assumes the interest rate is fixed — on a tracker or standard variable rate mortgage, actual savings will differ as rates change.
- Does not model the alternative of investing the overpayment amount — compare the mortgage interest rate against expected investment returns to determine which is more beneficial.
- Does not model lenders that recalculate the monthly payment after each overpayment rather than shortening the term.
Worked example
Inputs: £180,000 balance, 4.5% rate, 20 years remaining, £200/month overpayment.
Standard monthly payment (no overpayment):
r = 4.5% / 12 = 0.375% = 0.00375
n = 20 × 12 = 240
M = £180,000 × [0.00375 × (1.00375)^240] / [(1.00375)^240 − 1]
≈ £1,139/month
Total interest over 20 years: approx £93,360
With £200/month overpayment (total £1,339/month):
Iterative monthly balance reduction shortens term to approx 15 years 8 months
Total interest: approx £68,200
Interest saved: approx £25,160
Term reduction: approx 4 years 4 months
Changelog
| Date | Change |
|---|---|
| May 2026 | Initial publication |