Most fixed and discounted mortgage deals let you overpay up to a limit each year without a charge. If you overpay more than that, your lender can charge an early repayment charge (ERC) on the extra.
How the annual limit works
The most common limit is 10% of your balance each year, but lenders set the details differently:
- Which balance. Some lenders measure the limit against your balance when the deal started; others use your balance at the start of each year.
- Which year. Some count calendar years; others count from the date your deal began.
- What counts. Regular monthly overpayments and lump sums normally share one limit.
- Unused allowance. Whatever you don't use rarely carries over to the next year.
What an early repayment charge costs
Lenders set the ERC as a percentage of the amount you repay early, typically between 1% and 5%, and the percentage often falls each year of the deal. Your mortgage offer lists the exact charges.
On a £200,000 balance with a 10% limit, you can overpay £20,000 this year without a charge. If you overpay £30,000, a 3% charge on the extra £10,000 costs you £300.
When no limit applies
Standard variable rates and many tracker deals have no overpayment limit and no ERC. On fixed and discounted deals, the charges normally end when the deal does.
How your lender uses the money
Lenders treat overpayments differently. Some shorten your term and keep your payment the same; others lower your payment and keep the term. Some apply an overpayment the day it arrives, others at the end of the month. If you have a preference, tell your lender when you pay.
Check your plan against your limit
Enter your limit in the calculator's “Penalty-free limit” field, and it warns you about any year of your deal in which your overpayments go over it.
This guide gives general information, not personal financial advice. For help with your own situation, speak to a regulated mortgage adviser or MoneyHelper, the free government-backed guidance service. Our independent help page lists other free services.