Is it worth overpaying your mortgage?
Overpaying your mortgage means paying more than your required monthly payment. This can be a one-off lump sum (from a bonus or savings) or a regular additional amount each month.
How does overpaying work?
When you make an overpayment, the extra amount goes directly towards reducing the outstanding capital. Since interest is calculated on the remaining balance, a smaller balance means less interest each month. The effect compounds over time — interest saved today no longer generates future interest. The result: significant savings on total interest paid and/or a shorter loan term.
Types of overpayment
A single large payment, for example from a bonus, inheritance, or accumulated savings. Most effective when made early in the loan term.
A fixed additional amount paid monthly or quarterly on top of the standard payment. Easy to plan and consistently effective.
Some banks allow you to reduce the loan term (remaining months) instead of keeping the payment constant. Check with your bank for available options.
Savings example
Loan of 1,000,000 MDL, 9% interest, 20-year term. Standard monthly payment: ~9,000 MDL. If you overpay by 5,000 MDL/month: the term reduces to ~14 years and you save ~350,000 MDL in interest. A one-off overpayment of 100,000 MDL in the first 2 years saves ~120,000 MDL in interest and shortens the term by ~2 years.
When is overpaying worth it?
The earlier you overpay, the more you save — interest is higher at the start of the loan.
If the bank charges no early repayment fee (or less than 1%), overpaying is almost always worthwhile.
If your mortgage rate is higher than the return on your savings, it is more advantageous to reduce the debt.
Beyond savings, a smaller loan or shorter term provides greater financial peace of mind.
Tip
Before overpaying, check your bank's early repayment penalty. Even with a 1% penalty, overpaying can be worthwhile if the interest saved exceeds the cost of the fee.