If you have some spare money, you might wonder whether to use it to overpay your mortgage or to focus on remortgaging to a better rate. They are different things, and you can often do both. This guide explains whether to remortgage or overpay your mortgage, and how to get the best of each.
Two different things
Remortgaging and overpaying are not alternatives so much as different tools. Remortgaging switches you to a better deal, lowering the rate you pay. Overpaying means paying more than your required monthly amount, reducing the balance you owe and the interest charged on it. You can remortgage to a good rate and also overpay it, so the real question is how best to use each, rather than choosing one over the other.
What overpaying does
Overpaying reduces the amount you owe faster than your normal schedule, which cuts the total interest you pay and can shorten your mortgage term. Because interest is charged on the balance, reducing it sooner saves money over time. Even modest regular overpayments can make a noticeable difference over the years, which is why overpaying is a popular way to save on a mortgage for those who can afford it.
The annual overpayment allowance
Most mortgages let you overpay a certain amount each year without penalty, commonly up to 10% of your balance, while exceeding it may trigger an early repayment charge, as our guide to early repayment charges explains. So before overpaying, check your deal's allowance, so you reduce your mortgage without incurring a charge. Staying within the allowance lets you overpay freely and benefit from the interest savings.
When to prioritise remortgaging
If your current deal is ending or you are on the standard variable rate, prioritising a remortgage to a better rate is usually the first step, since it lowers the rate on your whole balance and can save more than modest overpayments, as our guide to what remortgaging is covers. Securing a good rate first means any overpayments you then make work even harder against a lower-cost mortgage.
When to prioritise overpaying
If you are already on a good rate, using spare money to overpay can be a sensible way to reduce your debt and interest, particularly if your savings would otherwise earn less than your mortgage rate costs. Overpaying also builds equity, lowering your loan-to-value, which can help at your next remortgage, as our guide to how a lower LTV helps explains. For many, overpaying a good-rate mortgage is a reliable saving.
Doing both
For many people, the best approach is to do both: remortgage to a competitive rate when your deal ends, then overpay within your allowance while you are on that good rate. This combines a low rate with a falling balance, maximising the saving. Reviewing your mortgage at each deal's end, and overpaying steadily in between, is a powerful way to keep your mortgage costs down over its life.
Weighing overpaying against other goals
Before overpaying, it is worth weighing it against other financial priorities, such as clearing higher-interest debts, building an emergency fund, or saving for other goals. Overpaying ties money up in your home, so keeping some accessible savings is wise. Overpaying is most worthwhile once more urgent priorities are covered, so consider your whole financial picture rather than directing every spare pound at the mortgage.
An example of overpaying
Suppose you overpay £100 a month on your mortgage. Over the years, because you are reducing the balance that interest is charged on, this can save a significant amount of interest and shorten your term. The exact saving depends on your rate and balance, but the principle is that money paid off early stops accruing interest for the rest of the term, which is what makes overpaying effective.
Reducing the term or the payment
When you overpay, you can usually choose to keep your term the same and reduce future interest, or ask to shorten the term. Some lenders reduce your future payments instead. Knowing how your lender treats overpayments helps you direct the benefit where you want it, whether that is clearing the mortgage sooner or lowering your future commitments, so your overpayments achieve the goal that matters most to you.
Regular or lump-sum overpayments
You can overpay regularly, by paying a little extra each month, or in lump sums when you have spare money, such as a bonus. Both reduce your balance and interest, within your annual allowance. Regular overpayments build the habit and steadily cut your mortgage, while lump sums let you make use of windfalls. Either approach works, so choose whichever fits your finances, keeping an eye on your penalty-free allowance.
Offset mortgages as an alternative
An offset mortgage offers an alternative to overpaying, linking your savings to your mortgage so that your savings balance reduces the interest you pay, while you keep access to the money. This suits people who want to reduce mortgage interest without locking the money away in overpayments. It is worth knowing offset mortgages exist as a flexible alternative, though they are a particular product rather than a feature of every mortgage.
Check before you overpay
Before overpaying, check your annual overpayment allowance and how your lender applies overpayments, so you avoid an early repayment charge and direct the benefit as you intend, as our guide to ERCs explains. A quick check ensures your overpayments do exactly what you want, reducing your mortgage efficiently without triggering an unexpected fee for exceeding the penalty-free limit.
A combined strategy works best
For most people, the strongest approach combines both tools rather than choosing between them. Remortgage to a competitive rate whenever your deal ends, and overpay within your allowance while on that good rate, so a low rate and a falling balance work together. Balanced against your other financial priorities and an accessible emergency fund, this combination is one of the most effective ways to reduce what your mortgage costs over its life.
Match the approach to your goals
Ultimately, whether to lean towards remortgaging or overpaying depends on your goals. If lowering your monthly cost is the priority, securing the best rate matters most; if becoming mortgage-free sooner is the aim, overpaying does the heavy lifting. Most people benefit from doing both in turn, and from reviewing the balance between them as their finances change, so that their mortgage strategy keeps pace with what matters to them at each stage.
Whichever you lean towards, the worst option is to leave spare money idle while sitting on an uncompetitive rate, so put it to work, on a better deal, a smaller balance, or both, and let it quietly reduce what your home costs you.
In short
Remortgaging and overpaying are different tools you can combine. Remortgaging lowers your rate, while overpaying reduces your balance and interest and can shorten your term, usually up to a 10% annual allowance without penalty. Prioritise remortgaging when your deal is ending, and overpay when you are on a good rate. Doing both, a low rate plus steady overpayments, is powerful, but balance overpaying against other financial priorities.
Where to get help and next steps
Read our guides to remortgaging, early repayment charges and how to avoid them, and how a lower LTV helps. This is general information, not mortgage or financial advice.