How Fast Can You Pay Off Your Home Loan?

Calculate Your Monthly Payments to Reach Your Goal

The following calculator uses JavaScript to instantly update loan payments based on changing any inputs. You can use it many different ways to figure your mortgage.

• Change Loan Term: If your initial loan term was 25 years but you would like to pay off the loan in 15 years you can set the loan term to 15 years and it will show you what monthly payment you would need to make to extinguish the debt in 15 years.
• Start in Middle of a Loan: Use your current loan balance as the original loan amount, then set the term to how many ever years you would like to pay off the loan in and it will show the needed monthly payment.
• Lump Sum: This calcualtor works by showing the impact of regularly recurring payments of a set amount. If you wanted to make a lump sum payment today as well, then you would subtract that lump sum amount from the current loan balance.
• Changing Rates: If interest rates rise or fall that can have a dramatic impact on your loan payments. You can adjust the rates and see how your payments would change should you remortgage today, see rates change, or obtain another loan at a different rate in the future.
• Adjust Based On Monthly Budget: If you wanted to pay the loan off in 10 years but the monthly payments were too high for your budget then you could set the goal to 11.5 or 12 years and see what the right payment amount is to pay the loan off then.
• Combo Usage: As the results appear instantly, you can run multiple scenarios quickly and see, for example, what your monthly payment would be to pay off your remaining balance in x years at y rate.

Mortgage Calculator UK

Mortgage Amount - £

Interest Rate - %

Term - Years

Calculate

Full Monthly Payment

£789.5

Interest Only

£345

Months

300

Total Interest Payable

£56,850.04

There are 12 months in a year, but our calculator is designed to input years and output months. If you would like to enter a set number of months in your goal time use the following conversion chart to convert any additional months into the decmal fraction of a year.

Entering Months as Decimals

• one month: .083333
• two months: .16667
• three month: .25
• four months: .33333
• five month: .41667
• six months:.50
• seve month: .58333
• eight months: .66667
• nine month: .75
• ten months: .833333
• eleven month: .91667
• twelve months: 1.000

Should I Overpay My Mortgage?

Pay Higher Interest Debts First

If you have other higher-interest debts it can make sense to pay those off first. If you have other investments which you are fairly certain will have superior returns, or get tax advantages for contributing to a retirement program it can make sense to fund those other options too.

Emotional Benefits of Overpayment

In general paying extra on your home is not simply just a financial decision. There is an emotional dividend beyond the interest savings in knowing your home is paid off, your family is secure, and you have one less thing to worry about.

Inflation and Interest Rates

Since the early 1980s interest rates have declined secularly in the developed world with central banks getting more aggressive with their market interventions. Globalization, technology and the internet were massive deflationary forces along with families having fewer children. Many of these deflationary benefits have already been felt across the economy and were associated with increasing financial asset prices as interest rates fell.

In response to the global COVID-19 crisis central banks intervened on a scale not seen since at least World War 2. For Valentine's Day the European Central Bank even published a love poem to loose monetary policy.

Roses are red
Violets are blue
We’ll keep financing conditions favourable
‘Til the crisis is through#ECBmyvalentine #ValentinesDay

— European Central Bank (@ecb) February 14, 2021

Money is a social construct. Loss of faith is a nonlinear process.

There's a reason people are bidding up Bitcoin, ridiculous cryptocurrencies, left-for-dead retailers like GameStop, and throwing money at hundreds of SPACs.

Eventually inflation will spill from the capital markets into the broader economy. When it does, the central banks which stoked it via ultra-loose monetary policy may not be able to stop it very easily. Such inflation could cause financial asset prices to drop (due to a higher risk-free benchmark & larger discount rate) while interest rates rise (making the carrying cost of serving debts higher).

Those who had paid extra on their homes will be able to better handle rate rises than those who made the minimum payments and are holding higher levels of debt.

Which is Better: Lump Some or Monthly Payments?

Mortgages charge interest on how much ever debt there is outstanding. Each month you pay off some of the principal and you pay off the interest that accrued that month.

If you make a large lump-sum payment then you are instantly reducing the remaining loan balance from that day forward. For exmample, if you had access to £10,000 and could apply the sum immidiately to a 3% loan then you can calculate how much you will save in interest monthly with the following equation:

monthly interest savings = lump sum * rate / frequency

£10,000 * 0.03 / 12
£10,000 * 0.0025 = £25 saved per month = £300 saved per year

The above example shows the monthly and annual savings you will enjoy with a lump sum payment. Those savings will be this month, next month, this year, next year, etc.

If you instead added an extra £833.33 monthly for a year you would make the same £10,000 overpayment, but it would be stretched out across time & so your savings would be less. Initially you would only save 1/12 of the £25 monthly savings.

If you stretched out the overpayment across multiple years then the monthly interest savings would be lower.

The sooner you can apply extra funds to your loan the more interest expense you save.

If you do not have a large lump sum set aside then paying extra monthly or shifting to accelerated biweekly payments can be advantageous as well. Either way you save on interest, but the sooner you pay exta the more you save.

How Will Changing Rates Impact My Payments?

If you believe interest rates will fall then you could remortgage at lower rates at the end of your fixed introductory rate term.

If you believe interest rates will rise then it makes a lot of sense to make extra payments on your mortgage to reduce the balance as much as possible before rates rise.

We also offer a calculator with amortisation schedules for changing loan rates, so you can see your initial loan repayments and figure out how they might change if interest rates rise.

Maximise Your Savings with Mortgage Overpayments

Buying a house involves serious financial planning and responsibility. You must have a good credit background, ample income, and a substantial deposit to qualify for a mortgage. And like most homebuyers, you likely chose a mortgage with the most affordable monthly payments. This ensures you can manage your budget to sustain timely payments. But overtime, as your income improves, you might consider early mortgage repayment.

Our guide will discuss mortgage overpayment and how you can use it to your advantage. We’ll rundown overpayment’s benefits and why it can help you secure more favourable remortgaging deals. We’ll also include different payment strategies which allow you to apply overpayments on your mortgage. Lastly, we’ll discuss its disadvantages and how to avoid early repayment penalty charges.

The Benefits of Mortgage Overpayments

When you first took your mortgage, perhaps you didn’t think about making overpayments. But as the reality of a 25-year mortgage dawned on you, you likely reconsidered early repayment.

A 25-year debt is a long time, which you don’t want to be paying in retirement. With this concern in mind, the prospect of early repayment seems more favourable and reassuring. Thus, paying off your mortgage early takes a huge load off your shoulders. That’s one major debt off your list. You gain peace of mind knowing you own a home that your children can inherit.

Mortgage overpayments often beat returns from savings accounts. These days, it’s rare to find high interest savings accounts that yield large savings. But if you can obtain a higher rate on your savings accounts than you pay for your mortgage, savings accounts can be more favourable. However, if your mortgage rate is higher than your savings rate, which is more likely, then it makes better sense to overpay your mortgage. This will save a considerable amount of interest costs.

How much can you save? Based on a £200,000 mortgage at a fixed 3% APR, you can save over £5,000 if you make an overpayment of £50 per month. It will also remove more than 1 year off a 25-year mortgage term. Consider this example if you want to maximise your savings. If you make higher overpayments, you can further shorten your loan term and reduce your interest costs.

Here are the advantages of making extra mortgage payments:

Reduce Your Mortgage Balance Faster

With regular monthly payments, your mortgage balance is paid down at a slow pace. It would take years before the mortgage amount you borrowed is diminished significantly, especially if you took a large capital. But by making overpayments, you effectively reduce your mortgage balance right away. Plus, you do not pay interest on the amount you overpay.

If you plan to make overpayments, speak with your lender first. Make sure they apply your overpayments toward your mortgage balance instead of the interest. Extra payments toward the interest do not in any way reduce the amount you borrowed.

Lower Your Mortgage’s Total Interest Costs

As your mortgage balance decreases, so do your interest charges. If you make overpayments, you substantially reduce the amount of interest paid over the life of your loan. This saves you thousands of pounds on your mortgage compared to just making regular monthly payments. And the higher the overpayment amount, the more interest you save, and the shorter your loan term will be.

Reduce Your Loan Term

Making mortgage overpayments effectively reduces your initial loan term. The time you can save will depend on the amount of overpayment you make. The higher the overpayment, the shorter your loan term will be. If you can afford it, consider making a higher overpayment on your mortgage. Even with as low as £50 per month, you can remove 1 year and 9 months off a 25-year term. It will also save £6,727 on total interest charges. This is based on a £200,000 mortgage balance at 3% APR with overpayments made at the start of the loan. Meanwhile, with extra £100 per month, you can remove 3 years and 4 months from the loan term. The total interest savings will amount to £12,438. Both calculations presume the interest rate remains at 3% APR. See the table below.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

If you overpay £100 per month, you’ll save £5,710.60 more in interest expenses compared to paying extra £50 per month. This example shows that even with a modest amount per month, you can shorten your loan term and reduce your mortgage’s interest costs.

Build More Home Equity Faster

The more overpayments you make, the sooner you can build significant home equity. With overpayments, your loan-to-value ratio (LTV) decreases faster. LTV is a percentage that compares your mortgage balance with the value of the property. A lower LTV ratio means you’ve paid a significant portion of your mortgage.

Interest rates get cheaper as your LTV drops. Thus, it makes sense to make a higher deposit to reduce your LTV. Furthermore, having a lower LTV allows borrowers to obtain more favourable remortgaging deals. Most lenders reserve the best rates for borrowers with 60% LTV and below. With a significantly lower rate, you could potentially save twice over your initial mortgage.

For instance, if you’re planning to remortgage into a 5 fixed-rate loan, it’s crucial to have a low LTV. Once you secure a lower rate, you will save more on interest costs. And if you continue to make overpayments, you will further reduce your term and interest charges.

The following table shows examples of rates for 5-year fixed mortgages with corresponding LTV ratios. The rates were based on a £200,000 property with a 25-year term in October 2020.

Based on the example, the 5-year fixed mortgage with the highest rate is offered to borrowers with 90% LTV, which is 3.05% APR. But if you reduce your LTV to 80% upon remortgaging, you can obtain a 5-year fixed mortgage with 1.97% APR. That’s lower by 1.08%, which results in substantial interest savings. The lowest rate is offered to borrowers with 60% LTV, which is 1.45% APR.

But before you decide to make overpayments, it’s best to speak with your lender first. Mortgages usually come with early repayment charges. This typically applies to all types of mortgages during the first few years of the loan. If you’re not careful, you might have to pay steep penalty costs.

Lenders use ERC to cover some of the interest they lose when you prepay your mortgage. Penalty fees are intended to discourage borrowers from overpaying or selling their home early. It also hinders homeowners from remortgaging before their current mortgage ends. To avoid ERC penalties, make sure to overpay within the allowed amount. Once the introductory period ends, you can start making higher overpayments.

How much can I overpay? Generally, most lenders allow borrowers to pay up to 10% of the mortgage balance per year during the introductory period. Anything beyond this amount is subject to early repayment penalty fees. According to the Financial Conduct Authority (FCA), early repayment charges must be stated as a cash value and should be a reasonable pre-estimate. To know your ERC amount, read the small print on your mortgage agreement, or speak with your lender to verify it.

How is early repayment charged? ERC penalties are usually tiered throughout the introductory period. This ranges between 1% to 5% of the mortgage balance. For instance, if you take a 5-year fixed-rate mortgage, the penalty fee is usually 5% for the first year. By the second year, this is reduced to 4%. Finally, during the fifth year, the penalty rate will be 1%. The earlier you make disallowed overpayments, the higher the penalty rate. And the higher your overpayment, the more expensive your ERC gets.

Let’s say you took a 5-year fixed mortgage on a £200,000 loan. You’re allowed to overpay up to 10% of the mortgage balance, which is £20,000. If you overpay below this limit, you won’t need to pay the ERC. However, if you paid £25,000 on the third year of the mortgage, you’ll incur a 3% penalty fee. As a result, you’ll be charged a 3% penalty on the extra £5,000, which is £150.

But depending on your lender, check how they apply ERC penalties. In other cases, for instance, if your mortgage balance is £200,000 and the ERC rate is 2%, you’re charged a penalty fee of £4,000 based on the balance. To be safe, do not pay over the allowed amount. Wait for the introductory period to end before making higher overpayments.

Overpayment Strategies

Once you’ve decided to make overpayments, there are several payment strategies you can employ. You may choose to make regular monthly overpayments or make lump sum overpayments.

After speaking to your lender, they may give you the option to set up a new direct debit with an overpayment feature. If you choose to pay a lump sum, they will advise you to transfer the amount from your bank account to the mortgage account. Depending on your lender, they may allow you to connect your mortgage account to a mobile banking app. This lets you send overpayments almost anytime you have spare cash.

When you make an overpayment, your lender might provide you with two options. First, they’ll ask if you want to reduce next month’s payment using the amount you overpaid. Next, they’ll ask if you want to keep making the overpayments and reduce your term.

When your lender offers these options, always tell them you want to reduce your term. If you use the overpayment to simply reduce next month’s payment, it only means you’re paying a bit early. You don’t save as much on interest costs. But if your lender already agrees to reduce your term with regular overpayments, you’re halfway to achieving your goal.

Still thinking of how to make overpayments? Here are different methods you can apply:

Additional Regular Monthly Payments

You can opt to add an extra amount on top of your monthly mortgage payment. This is a practical option if you do not have large extra funds. It’s also easier to budget because you can decide how much additional payments you can put each month. For instance, you decide to add a maximum of £200 to your monthly payment, and a minimum of £50 if you’re short on cash.

Let’s take the example below. If you have a £200,000 mortgage at 3% APR, here’s how much time and money you can save if you make regular monthly overpayments. The following table presumes your mortgage maintains a 3% APR for the entire 25-year term. To achieve this, after the initial period, you must be able to remortgage at the same rate.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

According to our example, your mortgage has a regular monthly payment of £948.42. If you don’t make overpayments, you’ll pay it off within the 25-year term. The total interest costs will be £84,526.79.

However, if you make a regular overpayment of £50 from the start of your mortgage, you can pay your mortgage in 23 years and 3 months. Your interest costs will be reduced to £77,799.88, which saves you £6,726.91 in total interest expenses. Meanwhile, if you make a regular overpayment of £200, you can pay your mortgage in 19 years and 1 month. It will decrease your interest costs to £62,904.43, which saves you a total of £21,622.35 in interest charges.

Thus, a small overpayment still saves you thousands of pounds. But if you make higher overpayments, you can lower your interest charges and further reduce your loan term. And depending on your arrangement with your lender, you can make overpayments anytime you have extra cash (using a mobile banking app).

Annual Lump Sum Equal to a 13th Payment

You can make a lump sum payment once a year. While most homeowners only make 12 payments annually, you can make a lump sum payment equivalent to a 13th payment on your mortgage. If you do this each year, you can significantly reduce your term and interest charges.

Consider this option if you prefer to make one overpayment a year instead of making overpayments each month. You can make your lump sum payment at the beginning of the year or toward the end of the year when you’ve saved enough extra funds. You can also time this when you receive a work bonus or your tax refund.

In this example, we’ll compare a regular mortgage payment with a lump sum 13th payment done once a year. The example presumes your mortgage rate remains at 3% APR. To make this possible, after the initial period, you must ideally remortgage to the same rate throughout the term. However, if you can remortgage to a much lower rate, that will be a more favourable deal.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years

The example shows you can pay your mortgage in 22 years and 4 months if you make a lump sum 13th payment each year. It will also save you £10,151.45 on total interest expenses.

One-Time Lump Sum Overpayment

Make a one-time overpayment if you have significant funds to spare. Perhaps you’ve stumbled upon a windfall from a lucrative business venture. Maybe a close relative left you with a large inheritance money. If you’ve saved a substantial amount over a few years, you may want to put some toward your mortgage.

The following example compares a large, one-time overpayment versus making regular mortgage payments. Again, the example assumes the interest rate remains at 3% APR for the 25-year term. To achieve this, borrowers must remortgage into the same rate. But of course, if you can remortgage to a much lower rate, you will save more on interest expenses.

Mortgage balance: £200,000
Interest rate: 3%
Loan term: 25 years