Overpaying the mortgage or saving: what the sums compare

The arithmetic compares two rates. Each pound overpaid saves interest at the mortgage rate, with no tax on the saving; each pound saved earns the savings rate, which can be taxed. What the arithmetic leaves out is access: savings can be withdrawn, and money overpaid generally cannot.

The first-year comparison

Take £10,000, a mortgage at 5% and a savings account paying 4%. Overpaid, the £10,000 avoids roughly £500 of mortgage interest in the first year. Saved, it earns £400 before tax. Savings interest above your personal savings allowance is taxed as income, so someone paying basic-rate tax who has already used that allowance keeps £320.

Reverse the two rates and the result reverses. The comparison turns on the rates and the tax, and both change over time.

What the rates leave out

Access. Savings can be drawn on for a repair, a gap in income or anything else. Money overpaid stays in the house until it is sold or the mortgage is repaid, unless the mortgage allows borrowing it back.
The early repayment charge. Overpaying above an allowance during a charge period costs a percentage of the excess.
Rates move. A fixed mortgage rate ends and savings rates change, so a comparison that holds one year may not hold the next.

Whether the rate difference or the access matters more is a question about a household's circumstances rather than arithmetic, and one we leave with you.

This is arithmetic, not a recommendation. Tax treatment depends on individual circumstances and can change. For advice on your own position, speak to an FCA-authorised adviser.

For the mortgage half of the sum, the mortgage overpayment calculator shows the interest an overpayment saves across the rest of the term, not just the first year.

Questions people ask

Is overpaying a mortgage the same as earning interest?

In effect it saves interest at the mortgage rate on the amount overpaid, for as long as that amount would otherwise have been owed. Unlike savings interest, nothing is paid out and there is no tax on it.

Can I get an overpayment back?

Generally not, unless your mortgage has a borrow-back feature that lets you draw on overpayments. Your lender can tell you whether yours does.

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Written 14 September 2026 · All guides · How we work it out

Mortgage Meadow is not authorised or regulated by the Financial Conduct Authority, and nothing here is a recommendation about your mortgage. It is information about how the arithmetic works, applied to figures you supply. For advice about your own circumstances, speak to an FCA-authorised mortgage adviser.