Overpay your mortgage or save instead?
FLD is not a lender or a credit broker and does not arrange credit. This is general information, not advice to borrow. Any representative APR shown is an example, not a personal quote: the rate you are offered depends on your circumstances and may be higher.
Important: This guide provides general information, not personalised financial advice. Financial products, rates and eligibility rules can change, so check the provider’s current terms before applying.
FSCS protects eligible deposits up to £120,000 per person, per authorised institution.
Quick answer
Overpaying saves interest at your mortgage rate, and the saving is effectively tax-free. Saving earns interest that may be taxed above your Personal Savings Allowance, but keeps the money accessible.
If your mortgage rate is higher than what you’d earn after tax, overpaying usually saves more — as long as you have an emergency fund and stay within any overpayment limit.
Side by side
| Point | Overpay mortgage | Save |
|---|---|---|
| Return | Interest saved at mortgage rate | Savings rate, minus any tax |
| Tax | No tax on interest saved | Taxable above your allowance (unless in an ISA) |
| Access | Usually locked in | Depends on account |
| Charges | Possible early repayment charges | None for most accounts |
General information, not advice. Check your mortgage terms.
Who it’s for
- Overpaying: people with an emergency fund and a mortgage rate above after-tax savings rates
- Saving: people without a buffer, or whose savings earn more than the mortgage costs
Who should skip it
These are general points to weigh up, not advice. You may want to look elsewhere if:
- Your lender charges early repayment charges on overpayments above the limit
Full explanation
Some people do both: build savings in an ISA first, then overpay with any surplus.
The catch
Money used to overpay is usually hard to get back. Many fixed deals allow about 10% a year without charges — check yours.
FAQs
Is it better to overpay my mortgage or save?
Compare your mortgage rate with your after-tax savings rate, and keep an emergency fund.
How much can I overpay?
Many fixed deals allow about 10% of the balance a year without charges — check your lender.
Can I get overpayments back?
Usually not, unless your mortgage has a payment holiday or borrow-back feature.
Get our weekly email
The Friday Finance Lowdown — five minutes of the money stuff worth knowing.
Free to join. See our privacy policy for how we handle your email address.