Savings vs mortgage overpayment calculator
Should you put extra cash into a savings account or use it to reduce your mortgage? Compare the two approaches using your own rates, tax assumptions and time horizon.
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Should you put extra cash into a savings account or use it to reduce your mortgage? Compare the two approaches using your own rates, tax assumptions and time horizon.
How this comparison works
What the calculator compares
Both scenarios start with the same mortgage and the same monthly spare cash. One saves the extra money; the other overpays the mortgage. The calculator compares the value of savings and any remaining mortgage debt at the same future date.
Worked example
On a £200,000 repayment mortgage at 4.5% with 25 years remaining, compare saving or overpaying £200 a month over five years. Use your savings AER and likely tax treatment to see how the two outcomes differ.
Interest and tax
The mortgage rate is converted to a monthly rate by dividing the annual rate by twelve. Savings use the monthly effective equivalent of the AER. For taxable savings the model applies the entered annual tax-free interest allowance and marginal tax rate to interest earned in each model year. This is an estimate, not a personal tax assessment. ISA interest can be represented using a zero tax rate.
Practical considerations
Overpayments generally reduce the mortgage balance and future interest, but your lender may limit penalty-free overpayments or apply early repayment charges. Savings usually remain easier to access and may offer emergency protection. Variable savings rates could fall, and offset mortgages work differently. Check your mortgage offer and savings provider's conditions.
What the result does not tell you
A small projected advantage is not a guarantee. Compare your emergency cash buffer, expected rate changes, mortgage penalties, access requirements and tax position before making a decision.
Frequently asked questions
Is it better to save or overpay my mortgage?
It depends on your mortgage rate, net savings return after tax, time horizon, early repayment rules and need for accessible money. This tool compares projected financial values, not personal suitability.
Does the calculator account for savings tax?
It estimates savings tax using the annual tax-free interest allowance and marginal rate you enter. Actual tax can differ, especially across tax years or if you have other taxable savings.
Can I use a Cash ISA?
Yes. Enter the ISA AER as the savings rate, set savings interest tax rate to 0%, and use an allowance of 0 to avoid treating ISA interest as taxable.
What if I pay the mortgage off early?
The model stops charging mortgage interest and redirects the regular mortgage payment plus spare monthly cash to savings, so that both scenarios keep the same available cash budget.
What about early repayment charges?
Early repayment charges and overpayment restrictions are not included. Check your lender's rules before overpaying.
Guides for your next step
- Should I overpay my mortgage or put the money into savings?
A like-for-like UK comparison of mortgage overpayments, savings after tax, cash access and lender penalties, with two worked examples.