How the result is calculated
An overpayment is money paid to the lender on top of the payment the mortgage asks for. All of it goes to principal, so from that month on you are charged interest on a smaller balance. What happens next depends on a choice that many borrowers never see being made: the lender can keep your payment the same, so the loan ends sooner, or recalculate the payment over the original term, so each month costs less. The calculator works out both from the same overpayments, because the difference between them is large.
The plain mortgage comes first: the level payment that clears the balance over the years left, and the interest it costs.
PaymentB × r ÷ (1 − (1 + r)−n)
each month:
interestbalance × r, rounded to the cent
balancebalance − (payment − interest) − overpayment
- B
- the balance
- r
- the rate per month
- n
- the months left
The schedule is then run again with your overpayments. In the shorter-term mode the payment never changes and the balance reaches zero early. In the lower-payment mode the payment is recalculated after every month that carried an overpayment, over the months still left on the original term, so the last payment falls on the original date. The interest saved is the plain schedule's total interest less the overpaid schedule's, and any charge on the overpayments comes off that.
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Monthly payment | 1,461.48 | PMT(5% ÷ 12, 300, 250,000) |
| Interest in month 1 | 1,041.67 | 250,000 × 5% ÷ 12 |
| Balance after month 1, no overpayment | 249,580.19 | 250,000 − (1,461.48 − 1,041.67) |
| Balance after month 1, with 200 extra | 249,380.19 | 200 less, and 200 less to charge interest on |
| Interest without overpaying | 188,441.28 | 300 payments |
| Interest, shorter term | 144,009.87 | 238 payments, 62 months sooner |
| Interest saved by shortening the term | 44,431.41 | on 47,400 overpaid |
Used to lower the payment instead, the same 200 a month saves 21,357.51 and the loan still runs its 25 years. The payment falls a little every month as the overpayments go in: a year in it is 1,447.29.
| Item | Amount | How it is obtained |
|---|---|---|
| Balance after twelve payments | 244,845.19 | the plain schedule |
| Less the lump sum | 234,845.19 | |
| Shorter term: payments saved | 21 | the payment stays 1,461.48 |
| Shorter term: interest saved | 21,712.16 | 188,441.28 − 166,729.12 |
| Lower payment: new payment | 1,401.79 | PMT(5% ÷ 12, 288, 234,845.19) |
| Lower payment: interest saved | 7,190.81 | 188,441.28 − 181,250.47 |
Reading the result
The headline is the interest the overpayments save in the mode you chose, after any charge. Under it, the qualifier gives the other half of the answer: how much sooner the mortgage ends, or what the payment becomes. The table puts both modes side by side so the choice is visible, and the figure for the other way round sits in the stat row too.
Mortgage-free is the number of months the loan now takes from today. Total overpaid is what you add to the payments, the extra and the lump sum together; the saving is measured against it, so 44,431 saved on 47,400 overpaid means each unit overpaid saved nearly one unit of interest. The chart shows the balance year by year with and without the overpayments.
What changes the result
Which way the lender applies it. Shortening the term roughly doubles the interest saved on the opening figures, because each overpayment keeps reducing the balance for every remaining year rather than being spread into lower payments.
How early you overpay. A unit overpaid in the first year stops interest on itself for the whole remaining term; one overpaid five years before the end stops only five years of it. The lump-sum example saves 21,712 in month 12; the same 10,000 in month 240 saves far less.
The rate. The saving grows with the rate, because each unit of balance costs more each year it is outstanding. At 2% the same overpayments save much less, and money kept in savings may earn more.
Charges. Lenders may charge on overpayments, typically during a fixed or discounted period and only above a free allowance. The law limits those charges in many countries. France caps them at the lower of six months' interest on the amount repaid and 3% of the balance (Code de la consommation R313-25). Spain caps them at 2% of the capital repaid on a fixed rate in the first ten years and 1.5% after, and 0.15% on a variable rate in the first five years (Ley 5/2019, art. 23). Ireland's Consumer Credit Act, Australia's ban on exit fees since 2011, India's 2025 directions and New Zealand's credit law allow none on a variable rate. The United States allows a penalty only on a fixed-rate qualified mortgage, at most 2% in the first two years and 1% in the third. Germany allows a fixed-rate borrower to repay early only with a legitimate interest such as a sale, at a compensation set by the lender's loss. Britain sets no ceiling: the charge must reflect the lender's cost and is set out in the offer. Enter the charge your contract states; with 3% charged above a 10% allowance, a 40,000 lump sum in the first month costs 450.
What is not included
The rate is held for every year that is left, so a fixed period that ends, or a variable rate that moves, will change the saving. Lenders' rules on how often they recast a payment, minimum overpayment amounts and any offset or redraw facility are not modelled. Nor is tax: where mortgage interest is deductible, part of the interest saved would have come back as relief. The calculator compares overpaying with doing nothing, not with saving or investing the same money.
Using the result
Check three things with your lender before you overpay: whether there is a charge and how large the free allowance is, whether the overpayment will shorten the term or lower the payment, and whether it can be redrawn if you need it. If you want the saving, ask for the term to be reduced; if you want room in your budget, ask for a recast. Keep an emergency fund before overpaying, because money paid into a mortgage is hard to get back out.