Save vs Overpay Mortgage — Which Wins?

How this calculation works

The decision usually turns on one simple inequality:

After-tax savings rate vs mortgage rate

If your post-tax savings return (adjusted for ISA vs non-ISA, and your tax band) is higher than your mortgage rate, saving wins. Otherwise, overpaying wins.

This calculator does the arithmetic properly, including compounding on both sides.

When overpaying almost always wins

• Mortgage rate > 5%
• Standard variable rate (6-8%)
• Non-ISA saver on higher/additional rate (after-tax yield drops to 2.5-3%)

When saving usually wins

• Mortgage rate < 3% (rare now)
• Non-taxpayer with 5%+ savings rate
• Cash ISA room available and savings rate > mortgage rate

Important factors this calculation does NOT capture

• Liquidity — overpaid mortgage is harder to access than savings
• Early repayment charges (ERCs) during fixed terms
• 10% annual overpayment limit on most fixes
• Flexibility — a saving pot can also cover emergencies
• Psychological — many prefer the certainty of debt reduction

Frequently asked questions

What is an ERC?

Early Repayment Charge — a fee of 1-5% of the overpaid amount if you exceed your fix's overpayment allowance (usually 10% of balance per year).

Should I save first for an emergency fund?

Always. Overpaying a mortgage is "forever" — you can't easily get the money back without remortgaging. Build 3-6 months' essential expenses in savings first.

What if I plan to move house?

Overpaying can reduce the equity you need from the sale, improving your next LTV band. Worth considering if you plan to move within 2-3 years.