Overpay your mortgage or invest?
You have spare cash each month. This works out whether it does more in your mortgage or in your investments, by running both options on exactly the same monthly spend and comparing what you are left with at the same date. It also gives you the break-even: the return your investments would need to average to finish level with overpaying.
after 20 years, with both options spending the same each month.
The two options, side by side
Both spend £0 a month, every month, for the full 20 years. Both finish with the mortgage cleared and the same house.
| Overpay first | Invest from day one | |
|---|---|---|
| Mortgage cleared | — | — |
| Total interest paid | £0 | £0 |
| Paid into investments | £0 | £0 |
| Investment growth | £0 | £0 |
| Capital Gains Tax | £0 | £0 |
| Left with at the end | £0 | £0 |
Where you stand, year by year
Savings minus what you still owe. Both start at your mortgage balance, in the red.
Your rate is held flat for the whole term, and almost nobody's is. Returns are treated as a steady yearly figure rather than the real run of good and bad years. Capital Gains Tax is worked out as one sale at the end against a single year's tax-free amount, so the tax shown is the cautious end. Clearing the debt has a value this cannot price, and so does being able to reach your money: an overpaid mortgage gives nothing back if your income stops. Build an emergency fund before you do either.
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OpenHow this is calculated
- We work out the monthly payment your mortgage needs on its own: the standard repayment sum over the years you have left, with interest charged monthly on the balance.
- We then give both options the same money. Every month, in both, you spend the mortgage payment plus your spare cash. Neither option is allowed to spend a penny more than the other, which is the only way the comparison means anything.
- Option one puts the spare cash into the mortgage. The balance falls faster, the interest charged falls with it, and the mortgage clears years early. From that month on there is no mortgage payment, so the whole of it goes into investments alongside the spare cash.
- Option two pays the mortgage normally and invests the spare cash from month one. The mortgage clears exactly at the end of its term.
- Your spare cash is treated as landing at the start of the month, so it saves or earns a full month wherever you send it. The contractual mortgage payment is treated as leaving at the end of the month, because that is how a repayment mortgage is built.
- We take your charges off the expected return, then grow the pot month by month at what is left.
- Outside an ISA we take Capital Gains Tax off the growth at the end, above the £3,000 tax-free amount. Inside an ISA there is nothing to take off.
- Both options finish with the mortgage at zero and the same house, so the whole difference between them is the pot at the end. That difference is the answer.
- We also solve for the break-even: the return your investments would need to average, every year, to finish exactly level with overpaying.
Frequently asked questions
Should I overpay my mortgage or invest?
It comes down to one number: the return your investments need to beat. Put your own figures in above and the calculator gives you that break-even rate. If you expect to beat it over the years you have left, investing finishes ahead. If you do not, overpaying does. The break-even sits a little above your mortgage rate, and further above it once charges and any tax outside an ISA are counted.
Why is the break-even higher than my mortgage rate?
Two reasons. Your mortgage is quoted as an annual rate but charged monthly, so a 5.5% mortgage actually costs 5.64% a year once the monthly compounding is counted. Investment returns are already quoted as an annual figure, so they have to clear the higher number. Charges push it up again, roughly penny for penny, and Capital Gains Tax outside an ISA pushes it up further.
Is comparing interest saved against the investment pot wrong?
Yes, and it favours investing every time. Interest saved is measured over the shortened mortgage, while the pot is measured over the full term, so the two cover different lengths of time. It also ignores what the overpayer does after the mortgage clears, which is invest the entire monthly payment for years. This calculator holds the monthly spend identical in both options and compares what you are left with at the same date.
Will I be charged for overpaying?
Most fixed and tracker deals let you overpay up to 10% of the balance each year with no charge. Go over and an early repayment charge applies, often 1% to 5% of the amount repaid. Lenders differ on the detail: some measure the 10% against the original loan rather than the current balance, and the year resets on different dates. The calculator flags when your overpayment crosses the usual limit, though your own deal is the only thing that settles it.
Does it matter whether I invest inside an ISA?
It matters a lot over a long run. Inside a stocks and shares ISA all growth is tax-free. Outside one, gains above the £3,000 annual exempt amount are taxed at 18% or 24% depending on your band. Switch the wrapper above and watch the break-even move. If you have ISA allowance left, £20,000 a year, use it before you compare anything.
What does this calculator leave out?
Your rate is held flat for the whole remaining term, and almost nobody's is. Investment returns are treated as a steady annual figure rather than the real pattern of good and bad years, which matters because a bad run early does more damage than the average suggests. Capital Gains Tax is applied as one disposal at the end against a single year's allowance, so the tax shown is the cautious end. It also puts no value on clearing the debt, or on being able to reach your money, and both are real.
The numbers only settle half of this decision. The other half is how you handle a bad run in the markets while carrying a mortgage, and that is what this book is about.
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This calculator is for general guidance only. It does not replace advice from a mortgage broker or a regulated financial adviser on your personal circumstances.
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