Should You Overpay Your Mortgage? A Country-by-Country Take

You have €10,000 sitting in a savings account earning 2%. Your mortgage charges 3.5%. The rule of thumb says overpay. Then you call the bank and learn that the early-repayment commission on your variable-rate loan came back into force this January, your contract caps you at 10% of the balance per year anyway, and the real interest saving — if you pick the right mechanic — is almost triple what the overpayment calculator on your bank's app showed.

This is the shape of the decision most people get slightly wrong. Whether you should overpay your mortgage in 2026 depends on two numbers nobody ever puts in the same article: the rate differential between your mortgage and your next-best use of the cash, and the legal cap your country places on what a lender can charge when you hand them money back early.

The short version:

Overpay only when your mortgage rate is clearly higher than the after-tax return on your savings — in April 2026, that's true almost everywhere in the euro area.

Every EU country caps prepayment commissions by law, but the caps differ wildly: 0% in Spain on variable after year 5, 0.5% back in force in Portugal, a 6-months-interest / 3% cap in France, interest-loss formulas in Germany and the Netherlands.

Most fixed-rate contracts give you 10% of the balance penalty-free per year — use the whole allowance before triggering any fee.

"Shorten the term" and "reduce the payment" are different mechanics on the same overpayment. The first can save you more than twice as much interest.

An overpayment is only worth what it saves against your actual remaining schedule — model it first, pay second.

At the ECB's April 2026 deposit facility rate of 2.00% and an average euro-area mortgage rate between 3.37% and 3.55%, there is a 1.3–1.5 percentage-point gap between what a mortgage costs and what cash earns — the exact window where overpaying your mortgage starts to make mathematical sense, if your contract lets you.

How much can you overpay your mortgage without a penalty?

Most European fixed-rate mortgages let you overpay 10% of the outstanding balance per year without any fee, but the legal cap on what a lender can charge beyond that varies wildly — from 0% in Spain on variable-rate loans after year five to an interest-loss formula in the Netherlands and Germany that can easily land in four figures. Always read the specific clause in your contract; the legal ceiling is just that — a ceiling.

Country | Cap on early-repayment commission (primary residence)
Spain | Fixed: 2% (years 1–10), 1.5% after. Variable: 0.25% (years 1–3), 0.15% (years 3–5), 0% after. Bank must also prove actual financial loss. (Banco de España)
France | The lower of 6 months' interest on the capital repaid or 3% of the outstanding capital (Code de la consommation, Art. R313-25). Waived on job-relocation sale, death, forced cessation of activity.
Germany | Vorfälligkeitsentschädigung — the bank's own interest-loss calculation, no statutory percentage. Loans can be terminated without penalty 10 years after full disbursement with 6 months' notice (§489 BGB).
Netherlands | 10% of original principal free per year. Above that: boeterente = (contract rate − current comparison rate) × remaining fixed period × excess amount. Zero fee when current rate ≥ contract rate.
Portugal | Variable: 0.5% (the 2022–2025 exemption ended 31 December 2025). Fixed: 2%. (DL 74-A/2017)
UK | Typically 10% of the balance free per year. Early Repayment Charges above that are 1–5%, usually on a sliding scale (5% year one of a five-year fix, dropping to 1% in year five).

Two things this table should change in your thinking. First, the prepayment cap is almost always the second-most expensive line in your mortgage after the interest rate itself, and it almost never appears on the amortization schedule your bank hands you at closing. Second, the 10%-per-year allowance is use-it-or-lose-it in most contracts — it does not roll over to next year. Couples who coordinate a single January overpayment at the top of every year extract significantly more value from the allowance than couples who wait until they "feel flush" in November.

Does overpaying reduce my term or my monthly payment?

An overpayment reduces your remaining balance either way — but most lenders let you choose what happens next, and the choice is worth thousands of euros. Keeping the monthly payment the same and shortening the loan saves roughly two to three times as much interest as keeping the term the same and reducing the monthly payment. The first option turns the overpayment into compounded interest savings over the shortened tail; the second spreads the same overpayment over the original term and collects a smaller share of the interest.

Here's the math on a representative euro-area loan. You borrowed €200,000 at 3.5% over 20 years, with a monthly payment of €1,160. You drop a €10,000 overpayment onto the loan today.

Option | New monthly | New end date | Total interest saved
Keep term, reduce payment | €1,102 | Year 20 (unchanged) | ~€3,900
Keep payment, shorten term | €1,160 | 17 months earlier | ~€9,600

Same €10,000. Same bank. About €5,700 more in your pocket by picking the shorter term. The reason is mechanical: with a level payment, more of every future instalment goes to principal instead of interest, so each month repays slightly more and the compounding stops sooner.

In most European markets, term reduction is the default unless you explicitly ask for payment reduction — but some lenders default the other way, and some won't convert between the two without you signing a schedule amendment. Ask before you send the money. This is the single change that separates an overpayment that feels pointless from one that actually moves the needle.

Should I overpay my mortgage or save?

Overpay when the interest rate on your mortgage, after any tax relief you receive on mortgage interest, is higher than the after-tax return on where the money would otherwise sit. In April 2026 that describes almost every euro-area borrower, because ECB rates have fallen faster than mortgage contracts have repriced (ECB monetary policy, February 2026). But the rule only applies once three preconditions are in place.

1. Emergency fund in place first. Three to six months of core expenses, held in instant-access cash, before any optional overpayment. Money committed to a mortgage is not retrievable without remortgaging or a second loan, and remortgaging in a rate-up environment is how people accidentally end up worse off than when they started.

2. No higher-cost debt outstanding. A credit card at 20% and an overdraft at 12% both dominate a 3.5% mortgage by a factor of three or more. Clear those first — every month you don't is a guaranteed loss.

3. No tax-advantaged alternative that out-earns the mortgage after tax. UK ISAs and LISAs, French PEA and assurance-vie, Dutch box 3 exempt savings, Portuguese PPR, German Riester. If one of these offers a post-tax return above your mortgage rate, it beats the overpayment — including for safety, because you keep access to the money. The MoneySavingExpert guide covers the UK case in detail (Mortgages vs. savings — MoneySavingExpert).

Only after those three are true does "mortgage rate − savings rate" become the deciding number.

The three quiet mistakes that turn an overpayment into a loss

Three patterns repeat across every market, and each of them converts a theoretically good overpayment into either a break-even or a net loss.

Forgetting the 10% rule exists, then tripping over it. The allowance is stated as "10% of the original principal" in the Netherlands, "10% of the outstanding balance" in the UK, and varies in Spain and Portugal depending on contract. Send €30,000 against a €250,000 loan where the limit is €25,000 and you will pay a fee on €5,000 that you could have avoided by splitting the payment across two calendar years.

Overpaying during a fixed period when rates have dropped below your contract rate. This is the Dutch boeterente trap. If your contract rate is 4.5% and the market rate is now 2.5%, the bank is losing two percentage points of future income on every euro you repay early — and they will charge you exactly that interest differential over the remaining fixed period. The fee often wipes out 12 to 24 months of the interest saving you were chasing. Either wait for the fix to end, or overpay only up to the 10% free allowance.

Not tracking what the overpayment actually saved. An overpayment against a schedule you never look at produces a saving you never confirm — which is indistinguishable, in practice, from no saving at all. This is the mistake that makes people say "I overpaid and nothing really changed" six months later. The number did change. They just never logged it against their baseline.

How people who come out ahead actually do it

The households who extract the full interest saving from an overpayment share a single habit: they maintain a live amortization schedule that shows the baseline remaining balance, the adjusted balance after each overpayment, the new term end-date, and the running total of interest saved. Every extra repayment is entered against the baseline and its effect recalculated before the transfer is sent, not after. The overpayment stops being an act of faith and becomes an act of arithmetic.

This is exactly why CasaTab's mortgage module supports extra repayments as first-class entries with a recalculated schedule — so you can see what a €5,000 overpayment actually buys you (or doesn't) before you send the money, and compare a term-reduction scenario against a payment-reduction one side by side. Model it in CasaTab and the overpayment becomes a decision with a number on it, not a feeling.

The takeaway

Overpaying your mortgage is one of the few financial decisions where the generic answer and the right answer diverge most. The generic answer looks at two numbers — mortgage rate, savings rate — and stops there. The right answer looks at the rate gap, the after-tax alternative, the prepayment cap in your contract, and whether you're taking the overpayment off the term or off the payment. Get those four right and a €10,000 overpayment in a typical euro-area market is worth close to €10,000 in real interest saved over the tail of the loan. Get one of them wrong and the saving can shrink to a third, or vanish entirely into a fee.

None of this is complicated. It just lives in four different documents — your mortgage contract, your national consumer credit code, the current market rate, and your own amortization schedule — and the people who come out ahead are the ones who pull all four onto the same page before they move the money.

For a wider view of where mortgage payments sit inside the broader cost of owning a home, the true cost of buying a house breaks down every fee that sits around the loan itself.