Overpay the mortgage or keep the cash?

The key point

Overpaying gives a relatively predictable benefit by reducing mortgage interest, while savings keep your money accessible.

Compare like with like

Use the mortgage rate and the after-tax savings return, then factor in flexibility, risk and any overpayment restrictions.

Compare the two uses of spare cash

Overpaying a mortgage gives a relatively predictable benefit because reducing the balance generally reduces future mortgage interest. Keeping the money in savings preserves liquidity and may be preferable if you need an emergency fund or expect to use the cash soon.

Compare the mortgage rate with the after-tax return available on a suitable savings option, while also considering access to the money. If the mortgage is fixed, check whether overpayments are restricted or charged. If the money would be your only emergency reserve, keeping some cash available can be more valuable than making the maximum possible overpayment.

A practical order of priorities

Many households can use a simple sequence: keep an emergency buffer, deal with expensive debt, then compare saving and mortgage overpayment options. Your own circumstances may change that order. The overpayment calculator can show the illustrative effect of extra payments.