Should you overpay your mortgage, save or invest?

Consider how you can use your spare cash today to benefit you tomorrow

During the financial whirlwind that hit the UK in 2022, a new term, permacrisis, was coined. It sums up the experience of living through a period of war, inflation, and political unrest. Permacrisis also describes the economic headwinds challenging all corners of society, from students and families to pensioners and small business owners alike. Despite daily struggles and sharp price increases, some managed to save for the future despite budgets being tight.

If you were fortunate enough to have made it through the permacrisis, or if you’ve received an unexpected windfall, you may be wondering how that extra cash can serve you best.

What could you do with extra cash?

Unless you'd rather spend it, your options are to pay down debts, save, or invest.


First, it’s almost always best to pay off expensive, high-interest debts like credit cards, overdrafts, and payday loans. Read on to learn how making additional payments on cheaper debts like a mortgage can benefit you in the long run.


It's always helpful to save some cash for rainy days (or sunny ones!), and interest rates have been steadily rising, so now's a prime time to set up a savings account. Besides being a safe option (with up to £85,000 guaranteed by the Financial Services Compensation Scheme), these accounts let you choose how you want to withdraw your cash. For example, some options let you access it instantly or with one month’s notice, while others involve locking it away for a year or more.


Your spare cash has more growth potential if you invest it rather than save it. However, the value of your investment could go down as well as up, and you may get back less than you put in. We've got more investing info below.

Why do people choose to make mortgage overpayments?

Mortgage overpayments are additional amounts you can pay to your lender, along with your usual repayments, to lower your balance.

You might decide to make overpayments to:

  • Repay the loan more quickly. A lower balance means fewer repayments before the home is paid off. You might want to consider this if your mortgage is close to having a zero balance.
  • Repay less in total. Interest is charged on the remaining balance of your mortgage, so by reducing the balance, you can reduce the amount of interest you pay (and so how much you pay overall).
  • Try to get a better mortgage rate. When you pay off more of your mortgage, you'll lower your loan-to-value (LTV)— the percentage of your home’s value covered by your mortgage. For example, if your property’s worth £500,000 and your mortgage balance is £50,000, your LTV will be 10%. A low LTV might signal to a lender that you're a good fit for a lower re-mortgage rate.

What should you consider before overpaying a mortgage?

Your lender might only allow overpayments up to a certain percentage of the remaining balance – for example, 10% – or even charge a fee for overpayments. You’ll need to check these conditions before making an overpayment as, if there are high fees and penalties, this may not be the best use of your money.

How do people decide whether to invest?

Financial markets have ups and downs, meaning you might get back less than you invest. However, investing might also bring greater returns than either a fixed-rate interest account or the money you’d save from overpaying a mortgage. So, if you have a specific goal, such as paying for your children’s education or a family wedding, investing could take you closer to it.

What should you consider before investing?

Despite the potential gains, it’s important to consider the possibility of losing any money you invest. Different types of investments react to market changes in different ways, so it can be a good idea to spread your money across different asset classes (such as shares, bonds and property) or invest in funds that do this for you. Some investments carry a much higher risk than others, so you should make sure you choose a level of risk you're comfortable with.

You should also plan to leave your money invested for at least five years to allow for some short-term dips in value.

Something else to consider is making your investments tax-efficient. You can invest up to £20,000 every year by using a stocks and shares ISA and you'll pay no income tax or capital gains tax on any returns you make from it. If you're prepared to wait until you are at least 55 to access your money (57 from 6 April 2028), the most tax-efficient way to invest could be through a pension, because you’ll receive tax relief on top of your contributions. So for every £80 you pay in, the government adds £20. Tax rules may change and depend on your individual circumstances. You can learn more about pension-related benefits such as tax relief.

Should you overpay your mortgage, save or invest?

Overpaying your mortgage, saving, and investing can all be sensible uses of extra cash. But what’s best for you depends on your openness to risk, your need to access the money and your mortgage balance.

If you’re comfortable with risk, investing has greater potential returns. However, predicting the market is challenging, which is why most people leave it to the pros. Your returns depend on the products you invest in, the risk level you choose, the performance of the specific assets you hold and any charges you need to pay. If you’re considering investing, find out more about our savings and investment products.

Overpaying your mortgage and opening a savings account are two ways to avoid losing money. By comparing the interest rates you're offered on savings accounts with the rate of interest you're paying on your mortgage, you can work out whether you'll be better off paying into an account or lowering your outstanding mortgage balance.

Everybody’s situation is unique, and a financial adviser can help you figure out the best course of action. Remember you might be charged for any financial advice you receive. Find out more about the pension and retirement support we offer.

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