Overpay mortgage or invest?
Overpaying saves a guaranteed rate with no tax. Investing might beat it, but the return is uncertain and usually taxed. This shows both after the same years.
How the comparison is built
Overpaying the mortgage earns a certain return equal to the mortgage rate, and because it is money you no longer owe, there is no tax on it. Investing the same amount might earn more, but the growth is not certain and, outside an ISA or pension, it is taxed at your marginal rate. The fair comparison is therefore the mortgage rate against the investment return after tax.
The tool grows the lump sum both ways over the years you choose. It also shows the break-even: the gross investment return that would exactly match overpaying, once tax is taken off. If your expected return sits below that line, the guaranteed saving from overpaying is the stronger choice.
Worked example
Put £20,000 against a 4.50% mortgage for 10 years and it is worth £31,059 in interest saved. Invest the same at 6.0%, taxed at 20%, and the net return of 4.8% grows it to £31,963. The gap is £903, and the investment would need to gross 5.6% simply to draw level with overpaying.
Common questions
Is overpaying the mortgage or investing better?
It depends on the numbers. Overpaying is a guaranteed, tax-free return equal to your mortgage rate. Investing might return more, but the growth is usually taxed and never certain. On the example, over 10 years investing edges ahead by about £903.
Why does tax matter so much here?
Because a pound saved off the mortgage is worth its full value, while a pound of investment gain outside a wrapper is taxed. To beat a 4.50% mortgage as a 20% taxpayer, the investment has to gross about 5.6% before tax. Anything below that and overpaying wins.
Does an ISA change the answer?
Yes. 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. If you invest through a wrapper, set the tax rate to zero to see the untaxed comparison.
What about the certainty of overpaying?
Overpaying removes debt with certainty, which is worth more than a spreadsheet shows if you value low risk or want to be mortgage-free sooner. Investing carries the chance of a loss, especially over shorter periods. The guaranteed saving is the honest floor to compare against.
Should I clear expensive debt first?
Usually yes. Credit cards and unsecured loans often charge far more than a mortgage, so clearing those beats both overpaying and investing. This calculator assumes you have already dealt with any higher-cost borrowing.