Underpayments and Overpayments Explained

Who is this page for?

If you’re a home owner and want to know more about overpaying or underpaying your mortgage payments this page is for you.

We’ll talk you through how the different payment options work and discuss when the right time might be to make an over or underpayment. 

In this article

What are mortgage overpayments or underpayments?

Most people pay around the same amount every month on their mortgage. But some mortgage deals offer the chance to either overpay or underpay. 

  • Overpay – Overpaying is when you pay more than you have to. This could be paying one lump sum or increasing your regular monthly payments.
  • Underpay – If you overpay your mortgage – and have reduced the amount you owe to lower than it would usually be – you might be able to make an underpayment.

This guide will explain how overpayments and underpayments work. Try our mortgage overpayment calculator find out how overpaying might impact your mortgage.

Should you overpay on a mortgage?

If you have a mortgage and are comfortably making your monthly repayments, overpaying could help you save money in the long term.

But it’s not for everyone – some people might prefer to put money into a savings account or pay off other debts instead. We can’t offer financial advice, so seek independent advice before you make an overpayment.

Here are some reasons someone may or may not overpay.

Reduces how much you owe

Overpaying lowers the total amount you owe more quickly. Overpaying means you might reduce monthly payments later in your mortgage term by reducing how much you pay in interest.

Overpaying won’t necessarily reduce the length of your mortgage

Making overpayments on your mortgage doesn’t necessarily reduce the length of your mortgage term. It may increase your monthly payments in the shorter term and lower your monthly repayments in the long term. 

Fees may be involved when overpaying

Each mortgage deal is different, so it’s worth checking if you can overpay and whether there’s a fee to do so. People on fixed rate mortgages can usually overpay by up to 10% before having to pay an early repayment charge. Check with your lender to find out.

How do you make mortgage overpayments?

Get the green light from your mortgage provider before you make any changes to your monthly repayments. 

Once you’ve checked, you can usually go online and make an overpayment.

You can also set up a separate standing order to pay the extra money on your regular payments.

If you choose to pay a single sum of money, you can usually transfer the money directly, but check with your provider that this is ok. If you want to make an overpayment on your Lloyds Bank mortgage, find out how here.

How mortgage overpayments work

Making a mortgage overpayment is usually very simple. To help you understand how it works, here’s a breakdown of the process.

First, take the remaining money you have to pay back on your mortgage.

Example: £150,000

Next, look at how long left you have to pay it back.

Example: 15 years and zero months

Then, find the current interest rate you pay.

Example: 3.0%

Finally, decide how much money you want to overpay on your mortgage – either monthly or in a lump sum.

Once you have all this information, visit our mortgage overpayment calculator. This can give you a breakdown of how this will affect your monthly repayments.

Overpaying on an interest-only mortgage

With an interest only mortgage, you only have to pay the interest charged each month for the length of your loan. At the end of the mortgage term, the amount you have borrowed is repaid in full.

You can overpay on an interest-only mortgage to help reduce the total amount borrowed.

When would you underpay on your mortgage?

There are some situations where you might be able to pay less on your mortgage repayments.

  • If you have made a single overpayment in the past, you might be able to underpay by the same amount you overpaid.
  • You might also be allowed to underpay for a while if you have a good track record of making overpayments.

The content on this page is for reference and does not constitute finance advice.

For impartial financial advice, we recommend government bodies like the Money Advice Service.

Related pages

Find out more about mortgages.

How much is your house worth? >

What is a LTV ratio? >

Mortgage deposits explained >

How to pay off your mortgage early >

Calculators & tools

We have a range of mortgage calculators to help you:

  • Find out how much you could borrow from Lloyds Bank
  • See how much you could save if you make overpayments on your mortgage
  • Get an idea how a change to the Bank of England Base Rate could effect your monthly payments

Use our calculators and tools >

Need to speak with someone?

You can talk to us over the phone or use our mortgage video service from the comfort of your own home.

Contact us

Important legal information

Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.

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