It’s a question that comes up time and again in client conversations: “Should I overpay my mortgage, or should I invest my spare money instead?”
The truth is, there’s no one-size-fits-all answer. The right choice depends on your personal circumstances, financial goals, and stage of life. In this blog, we’ll break down the pros and cons of both options, so you can make a decision that feels right for you.
Why Overpaying Your Mortgage Can Make Sense
For many people, their mortgage is the single biggest debt they’ll ever have. Reducing that debt early can provide huge peace of mind and long-term savings.
✅ You’ll save on interest. Every overpayment reduces your outstanding balance, which means less interest charged over the lifetime of the mortgage. For example, paying an extra £200 per month on a £200,000 mortgage could save you tens of thousands in interest and cut years off the term.
✅ It’s a guaranteed return. With investments, returns aren’t guaranteed. But overpaying your mortgage gives you a certain “return” equal to your mortgage interest rate. If your mortgage is at 5%, it’s like earning a risk-free 5% on your money.
✅ It provides security. For some clients, especially those nearing retirement, being mortgage-free feels like the ultimate financial milestone. It gives you peace of mind knowing your home is fully yours and your monthly outgoings are reduced.
⚠️ Things to consider:
- Check for early repayment charges on your mortgage before overpaying.
- Once money goes into your mortgage, it’s not easy to get it back if you need it for emergencies.
Why Investing Could Be the Better Option
Instead of paying extra into your mortgage, you might consider investing that money in pensions, ISAs, or other investment accounts.
✅ Potentially higher returns. Historically, stock market investments have outpaced average mortgage rates over the long term. While your mortgage rate might be 4–6%, investments could grow at 6–8% (though never guaranteed).
The FTSE 100 has returned an average of 8.9% since inception. After product and, fund adviser fees, this can reduce to 6-8%. Past performance is not a reliable indicator of future performance.
✅ Tax advantages. Pension contributions, in particular, can offer significant tax relief. For example, a £100 pension contribution could only cost you £80 as a basic-rate taxpayer. For higher-rate taxpayers, the benefits are even greater.
Please note tax treatment varies according to individual circumstances and is subject to change.
✅ Flexibility. Unlike mortgage overpayments, money invested in ISAs or certain pensions can be accessed later for different goals, whether that’s retirement, children’s education, or building a rainy-day fund.
⚠️ Things to consider:
- Investments carry risk. Values can go down as well as up.
- You need to think long-term. If you’ll need the money in the next 2–5 years, overpaying your mortgage might be the safer bet.
Which Is Right for You?
This really depends on your life stage, your goals, and your attitude to risk.
🌱 For first-time buyers and those in their 20s, 30s and 40s:
Overpaying the mortgage can feel like a safe, steady option. But it’s also worth considering whether investing, especially in pensions where your employer may match contributions, could help your money work harder over time.
🌳 For those age 50+, or if you’re approaching retirement:
The decision often comes down to balancing peace of mind with flexibility. Overpaying the mortgage could free you from debt before retirement, but investing might allow you to grow your pension pot and build more long-term income.
Remember, everyone is different, and so are their aspirations, lifestyles and circumstances. So focus on your own situation and future, not anyone else’s…
The Best of Both Worlds?
In many cases, a blended approach works well. Overpaying a little on your mortgage while also contributing to pensions or ISAs gives you the security of reducing debt and the growth potential of investments.
Final Thoughts
Overpaying your mortgage or investing your spare cash is not just a financial decision, it’s a lifestyle one. Do you value the security of being mortgage-free sooner, or the flexibility and growth potential of investing?
At Willow Tree Financial Services, we don’t believe in textbook advice. We start with your goals, your story, and your vision for the future. Then we create a tailored financial plan that helps you make confident, informed choices.
If you’d like clarity on the most suitable option for you, book a financial planning appointment today!
Call us on 01323 436680, get in touch here, or book an appointment here to get started.
At Willow Tree Financial Services, we offer personalised advice on Financial Planning, Mortgages, Investments, Pensions, Personal & Business Protection, and Wills, Trusts & Estate Planning, all tailored to your individual goals and circumstances.
We’re based in Polegate, East Sussex, and support clients across the South East and beyond.
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Your home may be repossessed if you do not keep up repayments on your mortgage.
The value of investments and pensions, and any income they produce, can fall as well as rise. You may get back less than you invested.
The Financial Conduct Authority does not regulate wills, trusts, estate planning, and lasting power of attorney.
Will writing is not part of the Quilter Financial Planning offering and is offered in our own right. Quilter Financial Planning accept no responsibility for this aspect of our business.
Approver Quilter Financial Services Ltd. September 2025
