Question 1

Reduce term or reduce payment — which saves more interest?

Accepted Answer

Reduce term, by a wide margin. Overpaying £200/month with 'reduce term' on a £200,000 mortgage at 4.5% over 25 years saves roughly £30,000 in interest and clears the loan 5–6 years early. The same £200/month with 'reduce payment' saves only the interest on those payments and trims your Direct Debit by a small amount — typically £5,000–£10,000 total saving over the term.

Question 2

Why does 'reduce term' save so much more?

Accepted Answer

Because the principal balance falls faster AND you keep paying the original (now relatively bigger) monthly amount against that shrinking balance. With 'reduce payment', the lender recalculates a lower monthly payment that still stretches over the original end date — so interest accrues for the full term.

Question 3

Which is the default for UK lenders?

Accepted Answer

Halifax, Nationwide, Santander, NatWest, Barclays, HSBC, Lloyds and TSB all default to 'reduce term' for mortgage overpayments. To switch to 'reduce payment' you usually have to phone or write to the lender. The default is the better choice for almost everyone — only switch if you genuinely need lower monthly outgoings.

Question 4

Can I switch between the two later?

Accepted Answer

Yes — every major UK lender will switch you between 'reduce term' and 'reduce payment' on request, usually free of charge and without affecting your fixed rate. Many people start with reduce-term while income is healthy, then switch to reduce-payment if circumstances change.

	Without	With overpay
Term	25 years	18 years 3 months
Total interest	£156,277	£109,338
You save		£46,940 · 6y 9m

Mortgage overpayment — reduce term or reduce payment?

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