Should I overpay my mortgage or save money?

Weighing the advantages of reducing debt compared to building accessible savings

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For many households, the question of what to do with extra income comes down to two choices: overpaying the mortgage or saving the money. Both options can improve long-term financial security, but each provides benefits in different ways. The decision is not solely based on mathematics; it also depends on priorities, risk tolerance, and personal circumstances.

Making extra payments on a mortgage speeds up the reduction of the remaining balance. Even small amounts can notably lower the total interest paid and cut the loan term by several years. At a time when mortgage rates remain higher than many easy-access savings accounts, paying off debt makes financial sense.

Appeal of Overpaying

Overpaying can also bring peace of mind. Knowing that the debt is decreasing faster than expected provides reassurance, especially for those nearing retirement or eager to reduce commitments. A smaller balance also offers more flexibility in the future, making remortgaging or moving house easier.

The disadvantage is decreased liquidity. Money used to pay off a mortgage cannot be easily accessed again without additional borrowing. If an unforeseen expense occurs, funds tied up in property may not be available at short notice.

Advantages of Saving

Building savings offers flexibility. Money held in cash accounts remains easily accessible for emergencies, planned expenses, or future investments. It also provides a financial cushion, helping households manage unexpected costs without relying on credit.

When interest rates on savings are competitive, the returns can be quite substantial. If savings accounts offer a higher rate than the mortgage interest being charged, the case for prioritising savings becomes stronger.

The drawback is that returns may not always outweigh borrowing costs. Often, the net benefit of saving is smaller than the guaranteed savings from lower mortgage interest. Inflation can also erode the value of savings if interest rates do not increase enough.

Balancing the Two

The decision is seldom a straightforward yes-or-no choice. Many households see value in a blended approach: maintaining a solid savings buffer while using any additional funds to make more mortgage payments. This guarantees both liquidity and long-term interest savings.

The suitable balance varies based on individual circumstances. Those without an emergency fund might prioritise saving, while those with a steady income and adequate reserves may focus on overpayments. Personal goals, whether aiming for early mortgage freedom or building capital for future opportunities, also influence choices.

A Matter of Priorities

Overpaying the mortgage and saving both build financial resilience, but in different ways. One reduces long-term costs and debt, while the other maintains flexibility and access to funds. Neither option is always right or wrong. Instead, the best choice is the one that most suits the household’s current needs and future goals.

Looking to Shape Your Borrowing Around Your Needs?

We’re here to help you explore your mortgage options, providing personalised insights to enable you to make well-informed decisions. Together, we’ll evaluate your financial goals and determine if now is the right time for your next move. Let us help you take the next step with confidence!

Contact Us

Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017,

UK (For Cantonese and Mandarin enquiries):

+44 (0) 7888 431091 

+44 (0) 7724 344788 

HK T: +852 6645 4462 

SINGAPORE: +65 8363 9221

– email info@cedar-crest.co.uk 

Your home may be repossessed if you do not keep up with repayments.