Overpaying a mortgage saves interest, but savings, investments or pension contributions can sometimes leave you with more money. Even when overpaying offers the better return, a small saving may not justify giving up access to the cash.
If you also have credit-card borrowing or another debt at a higher rate, paying that off will usually save more interest than the same mortgage overpayment. MoneyHelper recommends dealing with more expensive debts first.
What would keeping the cash cost?
Take £10,000 and a mortgage charging 4.5%. With the regular payments unchanged, putting the lump sum into the mortgage leaves the debt £10,940 lower after two years. A savings account paying 5% after tax would turn the same money into £11,025. Saving leaves you £85 better off, with the option of paying down the mortgage when the deal ends.
At 4% after tax, the savings would reach £10,816. Overpaying would win by £124. But if that £10,000 is also the money you would need for a boiler replacement or a spell out of work, £124 over two years is a small saving for giving up access to it. Recovering an overpayment may mean applying for another loan, at the very moment your income has fallen.
Some flexible and offset mortgages preserve access to money while reducing interest. Their rates and fees need comparing with an ordinary mortgage too. MoneyHelper explains these arrangements.
Tax can change which rate is better. £10,000 earning 5% produces £500 in its first year. A higher-rate taxpayer with their £500 Personal Savings Allowance unused keeps it all; someone whose allowance is already used elsewhere and who pays 40% tax on the interest keeps £300. A cash ISA can shelter it from tax.
The savings must also be available when you intend to repay. A fixed account may lock the money away; an easy-access rate may fall. Comparing the two routes until your mortgage deal ends lets you use a known mortgage rate; at renewal, you can decide again using the new offers. Paying an early repayment charge can wipe out a small advantage.
Compare your mortgage with savings
After 24 months:
- Overpaying: £10,940 in lower mortgage debt and any saved repayments.
- Saving: £10,816 in your savings account.
Overpaying finishes £124 ahead of saving over the period.
An investment would need a 4.59% annual return after fees and personal tax to match overpaying, or about 5.01% before annual charges of 0.4%, assuming no personal tax. This is the return required, not a prediction that investing will achieve it.
Both routes use the same cash and monthly payment. Rates stay constant; interest is calculated monthly. Any repayments released by paying off early go into savings. The charge comes out of the lump sum. This calculator does not include a change of loan-to-value band or pension tax relief.
Pension contributions and tax relief
If your employer increases its pension contribution when you pay more, that extra money and the tax relief both count towards the return. A mortgage overpayment would need to save enough interest to match them.
Even without extra employer money, the tax treatment can be substantial. Suppose a £10,000 pension contribution qualifies entirely for 40% relief. Its eventual cost to you is £6,000. If, at retirement, a quarter is tax-free and the rest is taxed at 20%, it provides £8,500 to spend before investment growth. That is £2,500 more than the £6,000 it cost you.
Over fifteen years at a constant 4.5%, a £6,000 overpayment would leave £11,769 less debt, assuming unchanged monthly payments. Under the withdrawal assumptions above, the pension needs to grow by about 2.2% a year after charges to match it. With 20% contribution relief instead of 40%, the same pension contribution costs £8,000 and needs growth of about 4.2% a year to match an £8,000 overpayment.
These figures depend on your tax rates and allowances. Taking a large taxable withdrawal could push you into a higher band. Pension money is also normally inaccessible before 55, rising to 57 in April 2028, with exceptions. It can help fund retirement or a mortgage repayment at that age; it cannot pay an earlier bill. Contribution relief; withdrawal rules.
Investment returns over five, ten and fifteen years
Keeping investments while leaving the equivalent amount on your mortgage means investing with borrowed money. The interest continues whether markets rise or fall. The investment needs to earn more than that interest, after charges and tax, to leave you ahead.
A £10,000 overpayment on a mortgage held at 4.5% would reduce the debt by £12,518 after five years. An investment must therefore gain 25.2% after costs and tax to match it. With annual charges of 0.4%, the growth needed before those charges is 27.7%.
Actual stock-market outcomes have varied much more widely. The table uses every complete five-, ten- and fifteen-year period within 1996–2025 for the MSCI World index in pounds, with dividends reinvested. It deducts an illustrative 0.4% annual charge, but not dividend withholding or personal tax.
| Time invested | Lowest investment result | Median investment result | Highest investment result | Mortgage debt reduction at 4.5% |
|---|---|---|---|---|
| 5 years | £7,420 | £15,910 | £21,000 | £12,520 |
| 10 years | £9,810 | £22,430 | £38,480 | £15,670 |
| 15 years | £16,640 | £36,190 | £55,180 | £19,620 |
The median—the middle investment result—was well ahead of overpaying at each horizon. But all three lowest results began in 2000. Even after fifteen years, that investment was worth less than the debt reduction from overpaying. The mortgage column assumes a constant 4.5% rate; actual mortgage rates changed during these historical periods. The investment periods also overlap and cover only one stretch of market history. They cannot establish the chances of beating your mortgage or the limits of future returns.
The falls along the way can be harder to live with than the final figures suggest. The MSCI World sterling net index lost about 47% between January 2001 and March 2003. Someone who needed the money during that fall could not wait for the eventual recovery. A stocks-and-shares ISA removes UK tax on gains and income, but not this risk.
Investing while keeping the mortgage requires enough income to meet the repayments during a market fall, without selling the investments. If the money must clear the loan on a particular date, gradually moving it out of shares reduces the risk of having to sell during a slump. A short repayment deadline leaves less time for markets to recover.
One overpayment can reduce interest on the whole loan
There is a separate reason to overpay just before remortgaging: it can qualify the remaining loan for a lower rate. On 14 October 2026, HSBC’s two-year Standard fixes for existing customers charged 4.79% at up to 70% loan-to-value and 4.69% at up to 60%, both with a £999 fee.
For a home valued at £400,000, a £5,000 payment reduces a £245,000 mortgage from 61.25% to 60% of the value. With twenty years remaining and the same monthly payment of about £1,589 on each route, the lower balance and lower rate leave the debt £5,988 smaller after two years. Keeping the £5,000 in savings at 4% would produce £5,408. Overpaying is £580 ahead in this comparison.
Another £5,000 paid after reaching the band would not buy that rate reduction again. Get quotes based on the lender’s valuation and both possible balances. Adding a product fee to the mortgage could take the loan back over the boundary.
An overpayment can reduce either the mortgage term or the monthly bill, depending on the lender’s arrangements and the option you choose. Nationwide, for example, normally reduces the monthly payment after a lump sum of £500 or more unless you choose another option. Keeping the payment unchanged clears the loan sooner; accepting the lower payment frees up monthly income. The examples above keep the payment unchanged.
Sources and calculations
Mortgage and savings. The base illustration has £200,000 outstanding, twenty years remaining and no overpayment charge. Lower debt after n months: £10,000×(1+0.045÷12)n, while neither route has paid off. At 24 months this is about £10,940; savings at 4% and 5% AER are £10,816 and £11,025. At 60 months the debt difference is about £12,518. Gross growth required with 0.4% annual charges is (1+0.045÷12)60÷0.9965−1 ≈ 27.7%. This hurdle is before any further deductions, including dividend withholding or personal tax. Monthly compounding is an approximation to lenders’ daily calculations. Rates after a fixed deal expires are unknown.
Loan-to-value. HSBC rates were checked on 14 October 2026: residential existing-customer 2 Year Fixed Standard, 4.79% in the 70% band and 4.69% in the 60% band, both ending 31 January 2029, both £999. The example compares only the first 24 months, not the complete fixed-rate period. £245,000 at 4.79% over 240 months requires about £1,589 a month. The calculation retains the unrounded payment. Paying that same amount after reducing the loan to £240,000 and rate to 4.69% leaves balances of about £229,652 and £223,663 respectively after 24 payments. Using the unrounded balances, the difference is about £5,988; £5,000×1.04² = £5,408. Both £999 fees are paid from other cash, so they cancel. No early repayment charge, valuation change, additional switching cost or lower required payment is assumed.
Investment history. Returns use the MSCI World benchmark column in Janus Henderson’s calendar-year table, not that fund’s returns; recent figures match MSCI’s GBP gross-return factsheet. There are 26 five-year, 21 ten-year and 16 fifteen-year periods. Each year’s growth factor is multiplied by 0.996 before compounding. Dividend withholding and personal taxes remain excluded. These overlapping periods are not independent observations; for an even number of results, the median averages the middle two. The separate drawdown figure uses MSCI’s net index, which includes dividend-withholding assumptions but excludes investment charges and UK tax.
Tax. Savings allowances depend on all income and interest in a tax year; the savings example assumes no tax-band crossing. Pension contribution relief and the tax-free lump-sum rules produce £10,000×(25%+75%×80%) = £8,500. The examples assume the entire contribution qualifies for the stated relief, no annual-allowance charge, sufficient lump-sum allowance, unchanged withdrawal rules and a 20% rate on the entire taxable withdrawal. Scottish income-tax rates differ. A relief-at-source contribution may require paying £8,000 initially and reclaiming the further £2,000; £6,000 is its final household cost, not necessarily its initial cash requirement. Minimum access age changes in April 2028. None of these pension figures is an annual investment return.
Checked 14 October 2026.