Should I overpay or save?
Mortgage overpayment vs savings, UK 2026
Compare £300/month overpaying your mortgage against the same amount going into a savings account. Side-by-side chart, crossover point, and a verdict based on your numbers — not generic advice.
Your situation
How much extra you can put aside per month.
Savings side
Overpaying your mortgage wins
Overpay mortgage: £3,517 ahead
Your 5.60% mortgage beats a 5.00% savings rate by 0.60 percentage points. Mortgage overpayment gives you a guaranteed return equal to your mortgage rate, and the interest is tax-free. £300/month overpaying could save you £40,951.21 in interest and 5.5 years on your term.
Side-by-side trajectory
Mortgage balance falls as you overpay. Savings value grows as you add interest. The crossover — when savings overtake the wealth you would have freed from the mortgage — is the inflection point.
Overpay mortgage
- Interest saved£40,951
- Years saved5y 6m
- Payoff dateFebruary 2041
- Effective return5.60%
Save the same amount
- Final value (net)£44,468
- Net interest earned£8,468
- Tax paid£2,117
- Total contributions£36,000
Crossover point
In this scenario, the wealth you free from the mortgage is always ahead of the savings portfolio at the 10-year horizon. Overpaying remains the right move here.
What this means for you
The verdict is specific to your numbers. The most common trap is following the old “always overpay” rule of thumb without checking the current rate spread — and the most common missed opportunity is parking spare cash in a non-ISA saver when an ISA is available.
The 2026 rate environment, in plain English
Bank of England has held base rate at 3.75% across five consecutive meetings. Fixed mortgage rates have crept higher off rising swap rates — typical 5-year fixed is around 5.6% in July 2026, with 2-year fixes similar. Savings rates remain competitive at around 5% on easy-access and 4.9-5% on 1-year fixed bonds. The old instinct on overpaying your mortgage was built when savings rates were 0.5-1%. With the gap closed or even reversed, the right answer is genuinely personal — and depends heavily on your tax band and whether your savings live inside an ISA.
Three quick rules of thumb:
- Emergency fund first. 3 months of outgoings in an easy-access saver before either path.
- Employer pension match next. A 100% employer match is a guaranteed 50-100% return — beats both options.
- Cash ISA allowance next. £20,000 a year, tax-free. Use it before mortgage overpayment in most cases.
Only after those three should extra cash go to mortgage overpayment — and only if your mortgage rate is higher than your after-tax savings rate.
When overpaying wins
High mortgage rate
Your mortgage rate is at least 1pp above any savings rate you can realistically access.
No ISA allowance left
You have already used your £20,000 ISA allowance and pension is already maxed.
Guaranteed return
Investing makes you nervous. Overpayment is a guaranteed return equal to your mortgage rate.
When saving wins
Tax-free ISA
Your ISA allowance is unused and your savings rate meaningfully exceeds your mortgage rate.
Liquidity needs
You have upcoming big expenses (renovation, family, career break). Liquidity matters more than small gains.
Behavioural relief
Seeing savings grow keeps you disciplined. Use the cash buffer as breathing room.
Frequently asked questions
It depends on the gap between your mortgage rate and your savings rate, and on your tax band. Typical 5-year fixed mortgages are around 5.6% (July 2026, swap-rate driven) and easy-access savings sit near 5%. With the gap that narrow, the answer turns on the wrapper: a cash ISA keeps every pound of interest tax-free, so for a higher-rate taxpayer it usually beats overpaying; a basic-rate taxpayer without ISA headroom is closer to a wash. If your mortgage rate is materially above your after-tax savings rate, overpaying wins because the return is guaranteed and tax-free.