How does an overpayment change total interest? A tiny worked example
Overpayments can reduce interest because interest is charged on the balance. This tiny example shows the immediate effect and why savings add up over time.
The short answer
In most mortgages, interest is charged on the outstanding balance. An overpayment reduces the balance earlier, so you generally pay less interest overall (all else equal).
The exact savings depend on your rate, term, and product rules (including overpayment limits and early repayment charges), but the basic mechanism is the same: smaller balance → less interest.
A tiny example
Example (simple and illustrative):
- Balance today: £200,000
- Interest rate: 6% per year
Ignoring daily vs monthly conventions, the “rough monthly interest” on £200,000 at 6% is:
[ £200,000 × 0.06 \div 12 = £1,000 ]
Now imagine you make a £500 one-off overpayment. The next month’s interest (on the smaller balance) would be lower by roughly:
[ £500 × 0.06 \div 12 = £2.50 ]
That doesn’t sound huge in isolation, but overpayments can reduce the balance earlier across many months, so the total interest saved can add up.
Helpful links
- Related calculator: /mortgage-overpayment/
- Related calculator: /mortgage-repayment/
- Full guide: /guides/mortgage-overpayments-reduce-term-vs-payments/
- Glossary: /glossary/overpayment/