Overpay mortgage or invest?
This is an arithmetic comparison, not a recommendation: overpaying returns the mortgage rate, guaranteed and tax-free, while investing returns an assumed rate that is taxed. On £20,000 over 10 years, a 4.50% mortgage rate is compared with a 6.0% assumed return taxed at 20%, and the larger figure depends on circumstances this calculator cannot see.
Is overpaying the mortgage or investing better?
Overpaying the mortgage earns a return equal to the mortgage rate, and because it is money no longer owed, no tax applies to it. Investing the same amount might earn more, but the growth is not certain. Outside an ISA or pension, investment growth is taxed at the saver's marginal rate. The two figures are made comparable by setting the mortgage rate against the investment return after tax, rather than against the headline return before tax.
The tool grows the lump sum both ways over the chosen years. It also shows a break-even figure: the gross investment return that would exactly match overpaying, once tax is taken off. Where the entered return sits above or below that line changes which of the two figures comes out larger, without saying which route suits an individual's wider circumstances.
What does this look like on the numbers entered?
Putting £20,000 against a 4.50% mortgage for 10 years is worth an estimated £31,059 in interest saved. Investing the same amount at 6.0%, taxed at 20%, gives a net return of 4.8%, growing it to an estimated £31,963. The gap between the two figures is £903, and the investment would need to gross 5.6% to draw level with the overpayment saving, before any other circumstances are weighed.
Common questions
Is overpaying the mortgage or investing better?
It depends entirely on the figures entered. Overpaying returns a guaranteed, tax-free rate equal to the mortgage rate, while investing returns an assumed rate that is usually taxed and never certain. On the example, over 10 years the larger of the two figures is the invested amount, by about £903. Which route suits an individual depends on circumstances this calculator cannot see.
Why does tax matter so much here?
A pound saved off the mortgage keeps its full value, while a pound of investment gain outside a wrapper is taxed. To match a 4.50% mortgage rate as a 20% taxpayer, the investment needs to gross about 5.6% before tax. Below that gross return, the overpayment saving is the larger figure in this comparison.
Does an ISA change the answer?
Inside an ISA or pension the investment return is not taxed, so the break-even return drops back to the mortgage rate. This tool assumes taxable savings or investments. Setting the tax rate to zero shows the untaxed comparison instead.
What about the certainty of overpaying?
Overpaying removes debt with certainty, an outcome a simple return comparison does not fully capture for someone who values low risk or an earlier mortgage-free date. Investing carries the chance of a loss, particularly over shorter periods. The guaranteed saving from overpaying is one fixed point to compare an assumed investment return against, not a conclusion in itself.
Should expensive debt be cleared first?
Credit cards and unsecured loans often charge more than a mortgage, so the guaranteed saving from clearing them is typically larger than either overpaying or investing the same amount. This calculator does not model that comparison directly; it assumes any higher-cost borrowing has already been addressed.
What does this look like on the numbers entered?
Putting £20,000 against a 4.50% mortgage for 10 years is worth an estimated £31,059 in interest saved. Investing the same amount at 6.0%, taxed at 20%, gives a net return of 4.8%, growing it to an estimated £31,963. The gap between the two figures is £903, under the assumptions entered, and does not account for circumstances such as risk tolerance or existing debt.
Sources & Rate Verification
Rates verified against official statutory guidance on 6 September 2026.