The 10% overpayment rule and early repayment charges
Most fixed and discounted mortgage deals let you overpay a set amount each year for free, and charge a fee on anything above it. The fee is the early repayment charge, or ERC. Here is how the allowance works, which balance it is taken from, how the charge is worked out, and how to overpay more without paying it.
What the allowance is
An overpayment allowance is the amount you can pay off your mortgage each year, on top of your normal monthly payment, without an early repayment charge. MoneyHelper notes that many lenders let you overpay up to 10% a year without penalties, which is why people call it the 10% rule. It is not a law. Each lender sets its own figure, and some allow more. The allowance only matters while you are inside a deal that carries an ERC: a fixed, discounted or some tracker rates.
Take a £200,000 repayment mortgage at 4.5% over 25 years, starting in Jan 2027. With a 10% allowance taken from the balance at the start of the deal year, you can overpay £20,000 in the first year. Spread evenly, that is £1,666.66 a month on top of the normal payment of £1,111.66.
Which balance, and which year?
"10% of the mortgage" hides two questions your offer should answer:
- 10% of what? Some lenders use the outstanding balance at the start of each deal year, so the allowance falls a little as you pay the loan down. Others use the amount you originally borrowed, so it stays flat for the life of the deal. A few use the balance on a fixed date each year.
- When does the year start? Often on the anniversary of the deal, sometimes on 1 January, and sometimes on the lender's own date. The date matters because an overpayment the day before the year resets and one the day after count towards different allowances.
Here is the difference the basis makes on the example loan if you pay £1,666.66 every month, which is the most that fits inside year one:
| Deal year | Starts | Overpaid | Allowance: balance basis | Allowance: original loan |
|---|---|---|---|---|
| 1 | Jan 2027 | £20,000 | £20,000 | £20,000 |
| 2 | Jan 2028 | £20,000 | £17,515 | £20,000 |
| 3 | Jan 2029 | £20,000 | £14,916 | £20,000 |
| 4 | Jan 2030 | £20,000 | £12,198 | £20,000 |
| 5 | Jan 2031 | £20,000 | £9,355 | £20,000 |
On the original-loan basis the allowance stays at £20,000 every year. On the balance basis it is £17,515 in year two and £9,355 in year five, so the same monthly overpayment goes over the allowance from year 2, by £2,485. If your lender uses the balance, leave a little headroom rather than paying the maximum to the penny.
Calculated with the same engine as our calculators, rounding interest to the penny each month.
How the ERC is worked out
An early repayment charge is a percentage of the amount you repay early. On an overpayment it applies to the excess only, the part above your allowance, not to the whole overpayment and not to the whole mortgage. The percentage is set by your contract. The FCA's mortgage rules (MCOB 12.3) say a lender may only impose an ERC that can be expressed as a cash value and is a reasonable pre-estimate of its costs from the early repayment, and that the maximum ERC must be disclosed in the illustration and in the offer document before you take the deal. So the figure is in your paperwork.
Suppose you overpay £30,000 in one go in Jun 2027, on the example loan with a 10% allowance and a 3% ERC. The year-one allowance is £20,000, so the excess is £10,000 and the charge is 3% of that: £300. The overpayment itself saves £48,870 of interest and clears the mortgage 5 yrs 10 mo sooner, so the charge is small next to the saving. But it is avoidable.
Splitting a lump sum across two deal years
Pay £20,000 in Jun 2027 and the remaining £10,000 in Jan 2028, the first month of deal year two, and both payments sit inside their year's allowance: £20,000 in year one and £17,512 in year two, after the first lump has reduced the balance. The charge is £0. The cost of waiting is a few months of interest on the second £10,000: the split plan saves £48,272 against £48,870 for the single payment, a difference of £598 over the life of the loan, to avoid an ERC of £300 today. On these numbers, then, paying the 3% charge and overpaying at once comes out slightly ahead over the full term. Splitting wins when the ERC is higher, the wait is shorter, or you would rather keep the cash on hand for a while.
The same idea works for regular overpayments. If you have more than the allowance to put in, pay up to the limit this deal year and park the rest in savings until the year resets. Our guide on overpaying versus saving covers what the savings account has to earn in the meantime.
ERCs that step down each year
Many five-year fixes charge a higher percentage early in the deal and a lower one towards the end, for example a ladder that falls one point a year. On the £10,000 excess above, each step of a 5%-to-1% ladder would cost:
| ERC rate | Charge on £10,000 excess |
|---|---|
| 5% | £500 |
| 4% | £400 |
| 3% | £300 |
| 2% | £200 |
| 1% | £100 |
If your ERC steps down and a windfall is due, check which deal year you are in. Waiting a month or two for the step can cut the charge; waiting a whole year rarely beats paying now.
The last weeks before a deal ends
ERCs are tied to the deal, not the mortgage. Once the deal ends and you roll onto the lender's standard variable rate, there is usually no ERC and no overpayment limit, unless your contract says otherwise. Timing a large overpayment around that date matters. On the example loan with a two-year deal ending in Jan 2029, a £50,000 overpayment in Dec 2028 lands inside the deal: the year-two allowance is £19,557, the excess £30,443, and the charge £913. The same £50,000 paid in Feb 2029 is charged £0. Two months' patience saves the ERC, at the cost of two months' interest on the lump, and you will usually be lining up a new deal for that date anyway; see what happens when your fixed rate ends.
Before relying on this, check the exact date the ERC period ends (it is in the offer), any cut-off for the money to arrive, and whether clearing the whole mortgage triggers the full ERC regardless of the allowance.
Reduce the term or reduce the payment?
After an overpayment, lenders usually offer a choice. Reduce the term keeps your monthly payment the same and brings the end date forward; the examples above assume this, and it saves the most interest. Reduce the payment keeps the end date and lowers what you pay each month, which frees up cash but gives back much of the saving. Lenders often apply one by default, so say which you want. The overpayment calculator shows the term-reduction case and checks your own numbers against a 10% allowance and ERC.
Related tools
- Mortgage overpayment calculator: monthly or lump-sum overpayments, your new mortgage-free date, and whether you stay within the allowance.
- Fixed rate ending calculator: what your payment becomes when the deal ends, and what overpaying before then does to it.
- Should you overpay your mortgage or save?: the return overpaying earns and what savings have to beat.
- What happens when your fixed rate ends: SVR, product transfers and remortgaging.
For education only; not legal or financial advice. Your allowance, deal year and early repayment charge are set by your mortgage contract, and your lender's figures are final. The loan in the examples is illustrative. Sources checked October 15, 2026.