I’ve got some spare cash: should I overpay my mortgage or invest?

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Shares Magazine

16 April 2026

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Ask the experts. Laura Suter is here to answer your personal finance questions. If you’d like a question considered for a future edition send it in now.

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I’ve read a lot in the news about interest rates being on the up again, which means mortgage rates will rise. I’ve got some money to spare and I’m not sure whether it’s better to invest the money or use it to overpay my mortgage. What should I be thinking about while I weigh this up?

Susan

It’s a question that many people will ask themselves now. With mortgage rates climbing again, the idea of throwing any spare cash you have at your mortgage, and so cutting down the debt is understandably appealing. But at the same time, investing that money could leave you better off over the long run. Ultimately, the decision is partly a financial one and partly personal preference.

But let’s start with the basic comparison and some of the maths. Overpaying your mortgage gives you a guaranteed return equivalent to your mortgage rate. If you’re paying 4% on your loan, then every pound you overpay is effectively saving you that 4% in future interest. When mortgage rates were rock bottom, the economics of overpaying didn’t make much sense, as you’d only be locking in a 1% return, for example. But now rates are higher, the balance may feel like it’s tipped.  

How investing compares

Alternatively, investing the money offers the potential for better returns, but comes with some risk of the investment markets as there’s always the chance your investments could fall in value. Over a longer timeframe, investing has historically delivered stronger returns, but you need to ride out the bumps along the way.

Let’s look at the sums – MoneySavingExpert has a very handy calculator that helps you work it out. We’ll take the example of someone with a £200,000 mortgage, with 25 years left on the loan, and a 4% interest rate. If they had a £5,000 lump sum and used it to overpay the mortgage, they’d save £8,250 in interest alone and clear the debt a year earlier – after 24 years. However, if that money was invested and earned 6% interest a year after charges, they’d have a pot worth £21,030 after 24 years – meaning they could pay off the remaining £12,980 of the mortgage and have £8,050 extra left over. In this case, investing makes more sense. 

However, the calculations rely on the person investing the money, rather than sticking it in cash and earning a lower rate. In the above scenario, if it was in cash and earning a 3% return a year, they’d end up £2,720 worse off at the end of the mortgage compared to overpaying. Equally, a higher mortgage rate changes the equation. If you’re paying 5% interest on the loan and earning 6% returns on your investments, based on the same scenario as above you’d still be better off by investing but only by £4,450. 

Clearly these figures differ depending on how big the mortgage is and how much you have to overpay. Let’s take the example of someone who has a £400,000 mortgage over 25 years on a 4% interest rate, but who can overpay by £500 a month. In that situation you’d save £73,130 by overpaying on your mortgage, meaning you’d pay it off just over 11 years earlier – a huge change. However, if that money was invested earning 6% returns a year after charges, you’d have a pot worth £130,650 in savings after 14 years, at which point you could use £120,330 to pay off the remaining mortgage and still be left with £10,320.  

Some practical considerations

Now we’ve covered the numbers; there are also some practical considerations when it comes to overpaying. Most mortgage lenders will only let you overpay up to 10% of your outstanding balance each year without charging a penalty. If you go beyond that, you could be hit with early repayment charges, which can quickly cancel out the benefit. 

However, there are some mortgages that let you overpay by more each year, or even without limits, so it’s worth checking your own terms. If you’re planning to remortgage in future, flexibility on overpayments is something to keep an eye on. 

One often overlooked downside of overpaying your mortgage is that the money is effectively locked away once it’s gone. Unlike savings or investments, you can’t simply dip back into it if you need cash in a hurry. The only way to access that money is usually by borrowing again, either through a remortgage or additional lending, and there’s no guarantee that option will be available or will come with good rates. 

That lack of flexibility is where investing has the upper hand. While investments can go up and down in value, they are generally accessible if you need them. Keeping money in an ISA or investment account also means you’re not putting all your eggs in one basket. For many people, their home already represents a large chunk of their wealth, so investing elsewhere can help spread risk. 

But this isn’t just a financial decision. There’s a strong emotional element too. For some, the idea of being mortgage-free sooner is hugely reassuring or their main financial goal. Lots of people might be laser focused on clearing that mortgage debt, and so that could take priority – even if financially it might not be the most astute move.  

Others are more comfortable holding a mortgage for longer if it means their money has the chance to grow. They’re willing to accept the ups and downs of investing in exchange for the prospect of higher returns over time.  

All about your personal preferences

That’s why the decision to overpay your mortgage often comes down to personal preference. If clearing your mortgage faster will help you sleep better at night, that has real value. Equally, if you’d be frustrated watching markets rise while your spare cash is tied up in your property, that’s worth considering too. 

For many households, a middle ground works well. Splitting spare cash between overpayments and investments means you can make steady progress on your mortgage while still building up an investment pot.