Is It Better to Remortgage or Overpay?

How Remortgaging Saves You Money

Remortgaging saves money by securing a lower interest rate, which reduces the amount of interest you pay on your entire balance. The savings can be substantial — switching from a 5.5% SVR to a 4% fixed rate on a £200,000 mortgage saves roughly £170 per month, or over £2,000 per year.

The savings from remortgaging are immediate and apply to every pound you owe. However, remortgaging involves costs — arrangement fees, potential valuation fees, and legal costs — which eat into the savings. The net benefit depends on the rate difference, your balance, and the costs involved.

How Overpaying Saves You Money

Overpaying saves money by reducing your outstanding balance, which means less interest accrues in future. The savings build gradually through a compounding effect — as your balance falls faster, each month's interest charge reduces, and more of your regular payment goes towards capital rather than interest.

The advantage of overpaying is that it doesn't involve any costs (within your overpayment allowance) and it permanently reduces your debt. The downside is that the savings are less immediate than remortgaging to a lower rate, and the money is typically committed once paid.

When Remortgaging Is the Better Option

Remortgaging typically makes more sense when:

• Your current rate is significantly higher than what the market offers
• You're on your lender's SVR and haven't yet switched to a new deal
• The savings from a lower rate outweigh the costs of remortgaging
• You want to restructure your mortgage (change term, release equity, switch type)

If you haven't remortgaged recently and rates have moved in your favour, switching deals should be your first priority. Once you're on the best available rate, then consider overpaying as an additional strategy.

When Overpaying Is the Better Option

Overpaying is typically the better choice when:

• You're already on a competitive rate and the market can't offer anything significantly better
• The costs of remortgaging (fees, ERC on current deal) would eat up most of the savings
• You have spare cash and your mortgage rate is higher than savings rates
• You want to reduce your LTV to qualify for better rates at your next remortgage

In many cases, the ideal approach is to combine both strategies. Remortgage to the best available rate, then use your overpayment allowance to reduce the balance further. This gives you the double benefit of a lower rate on a shrinking balance.

Combining Both Strategies

The most powerful approach is to do both. Remortgage to the best rate you can find, keeping an eye on the total cost including fees. Then, if you have spare cash beyond your emergency fund, make regular overpayments up to your annual allowance.

For example, if you remortgage to save £150 per month compared to your previous rate, you could direct that saving straight into overpayments. You benefit from the lower rate on your existing balance and accelerate the repayment of capital at the same time. Over a 25-year mortgage, this dual approach can save tens of thousands of pounds and shave years off your term.