Shorten the term or cut the payment?

When you overpay, your lender lets you choose: keep paying the same amount and clear the mortgage sooner, or keep the same end date and pay less each month. The default is usually wrong. Here's why.

The two options explained

Every time you overpay, the lender applies the money to your capital balance. But your monthly payment stays the same unless you ask them to recalculate it. You get two recalculation options:

• Shorten the term: the lender recalculates how quickly the remaining balance will be cleared at your current monthly payment. Your payment stays the same; your end date moves earlier.
• Lower the payment: the lender recalculates what monthly payment will clear the balance by the original end date. Your payment drops; your end date stays the same.

The default (and the problem)

Most lenders default to the "lower the payment" option unless you specifically request otherwise. This is the worse choice financially in almost every case, because:

• You save less interest overall, lowering the payment means the balance reduces more slowly than it would if the payment had stayed the same.
• Any future overpayments have less effect, because the contractual payment is now smaller.
• You end up paying for longer than you needed to.

Worked example

£200,000 mortgage, 25 years, 4.5% rate. You start overpaying £200/month from month one.

Same £200/month overpayment, very different outcomes. "Shorten term" saves £23,000 more over the life of the mortgage.

When lowering the payment makes sense

The default isn't always wrong. "Lower the payment" is the right choice in three scenarios:

• You genuinely can't afford the current payment reliably. A lower payment creates safety margin in a tight budget.
• You want the option to overpay some months but not others. Lowering the contractual payment means you can choose month by month whether to keep paying the old higher amount as a voluntary overpayment.
• Your circumstances are about to change. Maternity leave, a sabbatical, starting a business, anything that'll temporarily squeeze cash flow.

How to actually switch the option

Every UK lender does this slightly differently. Typical approaches:

• Nationwide: online banking, "manage overpayments" section, one-click choice. See our Nationwide page.
• Halifax: requires a phone call or branch visit on most products. Halifax rules.
• HSBC/First Direct: online form, usually processed within 5 working days. HSBC rules.
• Most other lenders: phone call. Tell them explicitly: "I want overpayments to shorten the term, not reduce my monthly payment."

Can I switch it back later?

Usually yes. Most lenders will recalculate in either direction on request, any number of times. Your payment and term can both change whenever you ask. This gives you a useful out: set "shorten term" now for maximum saving, but switch to "lower payment" later if life squeezes you.

The bottom line

For 80% of UK borrowers who can comfortably afford their current payment, "shorten the term" is the right choice and saves thousands. Change it if your lender didn't set it this way by default. Our main calculator lets you model both options side-by-side.