The 10% rule sounds simple — but the answer changes depending on whether your lender uses the outstanding balance or the original loan amount, and when in the year you ask. Here's the exact method, with worked examples for every major UK lender.
You'll be mortgage-free 6 years 9 months earlier
and save £46,940 in interest.
| Without | With overpay | |
|---|---|---|
| Term | 25 years | 18 years 3 months |
| Total interest | £156,277 | £109,338 |
| You save | £46,940 · 6y 9m |
A lower interest rate could save you thousands more on top. See if you could remortgage to a better deal.
We may receive a commission if you remortgage through a partner broker. This never affects the rate you're offered.
Lenders split into two camps. Halifax, Santander, NatWest, Barclays, HSBC and Lloyds typically calculate 10% of the OUTSTANDING BALANCE at the start of the year (or your deal anniversary). Nationwide and TSB typically calculate 10% of the ORIGINAL LOAN amount.
Outstanding-balance lenders give a shrinking allowance — as you pay down the mortgage, your £ ceiling drops. Original-loan lenders keep the £ ceiling fixed across the deal.
Open your mortgage offer document or annual statement and find the exact wording — 'outstanding balance' vs 'original advance' is the phrase to look for.
Worked example, Halifax (outstanding balance): balance on 1 January is £180,000 → annual fee-free overpayment allowance is £18,000, or £1,500/month if you spread it evenly.
Worked example, Nationwide (original loan): you borrowed £200,000 three years ago and now owe £172,000 → your annual allowance is still 10% of £200,000 = £20,000.
Worked example, Santander (outstanding balance): balance is £95,000 → allowance is £9,500/year, or roughly £791/month.
The allowance is per overpayment year, not per overpayment. If you've already overpaid £4,000 in March on a £18,000 allowance, your remaining fee-free room is £14,000 until the next reset.
Most lenders reset on 1 January. A few (Nationwide is one) reset on your deal anniversary instead — check your statement to be sure.
Overpaying in January saves you a full year of interest on that money. Overpaying in December saves you only a few weeks. If you have a lump sum to deploy, do it as soon after the cap resets as possible.
If you're already close to the cap, stop. Going £1 over usually triggers an early repayment charge of 1–5% on the excess — wiping out the interest saving on that excess amount.
The calculator below has an 'Annual cap %' field set to 10 by default. Enter your balance and rate, then your planned overpayment — the calculator enforces the cap and shows the exact interest and time saved.
Important: This article is for general information and is not financial advice. Always speak to a qualified UK mortgage adviser before making decisions about overpayments, remortgaging, or your specific mortgage product.