The question is not whether to overpay — it is what the money buys
If you have spare cash and a mortgage, overpaying is almost always a reasonable use of it. The interesting question comes immediately afterwards, when the bank asks what you want the repayment to do: shorten the loan, or shrink the monthly payment.
Both options apply the same euros to the same debt. They just spend the benefit differently. Cut the term and your monthly payment stays exactly where it is, so the loan ends earlier. Cut the payment and the end date stays where it is, so every month from now on is cheaper. One maximises total savings; the other maximises monthly breathing room. They are not close in size, and the gap surprises most people the first time they see it.
What actually changes inside the schedule
A French-system mortgage has a level payment worked out once from the amount borrowed, the nominal rate and the number of payments. Each month the lender charges interest on whatever you still owe, and whatever is left of the payment goes to capital. Early on, interest eats most of it; later, capital does.
When you repay capital early, the outstanding balance drops immediately. From that moment the interest charged every month is smaller, because it is calculated on a smaller number. That part happens no matter which option you pick — it is the automatic consequence of owing less.
The choice is about what happens to the payment. If you keep it where it is, the extra room created by the smaller interest charge goes straight into capital, which shrinks the balance faster, which shrinks the interest again the following month. That compounding is why cutting the term is so effective: you are not just skipping the last few payments, you are accelerating every payment in between.
If instead you ask for the payment to come down, the lender recalculates it over the reduced balance and the payments still outstanding. Your monthly cost falls right away, but the acceleration does not happen — you are still scheduled to be paying in year thirty, just less each time.
Putting numbers on it
Take a 250,000 € mortgage over 30 years at 2.85 %. The payment works out at about 1,034 €, and across the full term you would pay roughly 122,000 € in interest.
Now overpay 10,000 € after the first year.
- Cut the term: the payment stays at 1,034 €, the loan finishes 21 months early, and you save about 12,300 € in interest.
- Cut the payment: the loan still runs its full 360 months, the payment drops by about 42 € a month, and you save about 4,650 € in interest.
Same 10,000 €. About two and a half times the interest saving on one side; about 42 € a month of extra cash flow on the other. That is the trade you are making, and it is worth being explicit about it rather than picking whichever option the bank mentions first.
The exact figures depend on your rate, your remaining term and how early you overpay, which is why it is worth running your own numbers in the Mortgage Amortization Planner — set up the same overpayment as two scenarios, one of each mode, and read the comparison table.
Timing matters more than most people expect
The earlier an overpayment lands, the more interest it prevents, for the simple reason that it removes the balance for longer. Ten thousand euros repaid in year two of a thirty-year loan has twenty-eight years to work; the same amount in year twenty has ten. This is not a small effect — the same euros can easily save three or four times as much when applied early.
That argues for overpaying sooner rather than saving up for a bigger, later gesture. It also argues for regular small overpayments over occasional large ones, which brings us to the single most effective habit available to most borrowers.
One extra payment a year
Instead of one lump sum, pay one extra instalment every year — the equivalent of thirteen payments instead of twelve. On the same 250,000 € loan, this takes several years off the term and saves a five-figure sum in interest, without ever requiring a large amount of cash at once.
It works because it combines both advantages: every payment is early relative to the ones after it, and the term keeps shortening year after year, so the compounding never stops. If your income arrives with a bonus or an extra month's salary, this is often the easiest overpayment to actually sustain, and sustainability matters more than optimisation.
Does the rate type change the answer?
The direction of the answer holds for fixed, mixed and variable loans: cutting the term always saves more interest than cutting the payment. What changes is the size of the gap and how confident you can be about it.
On a fixed-rate loan everything is knowable. The rate will not move, so the schedule you project today is the schedule you will get, and the interest saving from an overpayment is a firm number rather than an estimate.
On a variable loan the saving depends on where the reference index goes. Overpaying is worth more when rates are high, because the balance you removed would have been charged at that higher rate. It is also worth more in a rising market for a subtler reason: cutting the term means fewer future reviews apply to you at all. The right way to handle the uncertainty is not to guess but to bracket it — run the same overpayment against an optimistic and a pessimistic index and see whether the decision changes. Usually it does not.
On a mixed loan the fixed stretch behaves like a fixed loan and the rest like a variable one, with one extra wrinkle: the early-repayment fee cap follows the stretch you are in, so the same overpayment can be free during the variable years and capped at 2 % during the fixed ones.
Why your schedule and the bank's may not match
If you have ever built your own amortization table and found it drifting from the one your bank sends, the culprit is almost always the day count.
Nearly every online calculator divides the annual rate by twelve and treats every month as identical. Spanish lenders generally do not. They charge interest on the real number of days between payment dates, divided by the real length of that year — 365, or 366 in a leap year. A 250,000 € balance at 2.85 % costs 584.02 € over a 30-day period inside a leap year, and noticeably more over the 31-day period that follows, even though the balance has gone down in the meantime.
This matters for overpayment decisions in two ways. It makes the projected interest saving slightly different from the twelve-equal-months estimate, and — more importantly — it means the exact date you transfer the money changes the outcome. Under a flat monthly model, the 5th and the 25th are the same day. Under a real day count they are twenty days of interest apart.
If you are going to act on a number, make sure the schedule behind it bills interest the way your contract says it does. Check the day-count clause in your deed and set the tool to match it.
When cutting the payment is the right answer
Maximum interest saved is not always the right goal. Cutting the payment makes better sense when:
- Your budget is tight. A lower fixed monthly commitment reduces the risk of missing a payment, and a missed mortgage payment is far more expensive than the interest you gave up.
- Your income is about to fall or become irregular. Parental leave, a career change, retirement, or moving to freelance work all argue for lowering the floor of your monthly obligations.
- Rates are rising on a variable loan. Cutting the payment can offset a review that would otherwise push your instalment up sharply.
- You want the flexibility back. The money you free up each month can go into savings you can actually reach, which a repaid mortgage balance is not.
There is also a middle path that gets overlooked: cut the payment now to create margin, and then voluntarily keep paying the old, higher amount as an ongoing overpayment. You get the safety of a lower obligation with most of the effect of the shorter term, as long as you keep the habit.
What the overpayment is allowed to cost you
In Spain, Ley 5/2019 caps the compensation a lender may charge for early repayment. On a fixed-rate loan, or the fixed stretch of a mixed one, the ceiling is 2 % of the capital repaid during the first ten years and 1.5 % afterwards. On a variable-rate loan the lender picks one of two schemes when the contract is signed: 0.25 % during the first three years, or 0.15 % during the first five — and nothing after that.
Two things are worth knowing. First, these are ceilings, not prices: many contracts charge less, and quite a few charge nothing. Second, the fee can never exceed the lender's actual financial loss, which in a rising-rate environment is often zero, because your old loan is worth less to them than a new one at today's rates.
Check your deed for the exact clause before you assume anything. Even at the cap, a 2 % fee on a 10,000 € overpayment is 200 € against an interest saving that can run into five figures — but it is worth knowing which number you are working with.
When not to overpay at all
Overpaying is not automatically the best use of spare money.
- Clear expensive debt first. Credit card balances at 18–22 % dwarf a 3 % mortgage. Pay those off before touching the mortgage — see how quickly with a credit card payoff calculator.
- Build an emergency fund first. Money repaid into a mortgage is very hard to get back. Three to six months of expenses in something liquid comes first.
- Compare against what your savings earn. If your mortgage is at 2 % and safe deposits pay 3 %, overpaying costs you money. Run both sides — a compound interest calculator makes the comparison quick.
- Check for old tax relief. Some Spanish mortgages signed before 2013 still qualify for deducción por vivienda habitual, which changes the maths in favour of keeping the debt.
A practical way to decide
Rather than reasoning about it in the abstract, put the actual decision in front of you:
- Load your real loan — amount outstanding, rate, remaining term and payment day.
- Add the overpayment you are considering, on the date you would actually make it.
- Duplicate the scenario and switch the second one to the other mode.
- Read three numbers side by side: total interest, months remaining, and the monthly payment afterwards.
- Ask yourself whether the extra interest saved is worth more to you than the monthly relief you gave up. That is the whole decision, and now it has a price tag.
If your loan is variable or mixed, there is a second timing question worth settling before you transfer the money: whether the overpayment should land before or after the next rate review. That one has a surprising answer, and it is covered in Should You Overpay Before or After the Rate Review?.
The short version
Cutting the term saves substantially more interest — typically two to three times as much for the same money — because it accelerates the whole schedule instead of just trimming the end. Cutting the payment saves less but improves your cash flow immediately, which is the right call when the budget is tight or income is uncertain. Overpay early rather than late, prefer a sustainable annual habit over a heroic one-off, and check your early-repayment clause before you commit. Whichever you choose, put your own numbers through a schedule that charges interest the way your lender does, so the answer you act on is yours and not an average.