Martin Lewis gives his verdict on overpaying your mortgage vs saving

With mortgage rates rocketing in the past couple of years, Martin Lewis has given his verdict on whether it is better to overpay on your mortgage or put your money in savings. This year, more than one and a half million people will be coming off their fixed rate mortgage and will be looking at what to do next.

In general, the money saving expert recommends overpaying your mortgage if your rate is higher than you can earn in savings.

Speaking on The Martin Lewis Podcast, he says: “After the pandemic there is a group of people who have high mortgages rates and money in savings. It has meant my mail bag has started to swell with people asking me if they should use the money to save or use the money to overpay.

“If you have savings, or you save each month, and have a mortgage as lots of savings were built up during the pandemic. The very simple rule of thumb is if your mortgage rate is higher than you can earn in savings, then overpaying mathematically adds up.”

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He uses the example of someone who has £10,000 spare. If they put this in a savings account that pays 4% interest, they would make £400, or £320 if you end up paying 20% tax on savings. But if the same person used that £10,000 to overpay a 6% mortgage, they would save £600 in interest.

The MoneySavingExpert website has a Mortgage Overpay Calculator which could help you see which is the best option. They also warn that if you are considering overpaying your mortgage, check with your provider if you’ll be subject to overpayment penalties.

A fan of the expert’s advice has shared how they’ve saved £35,000 in interest on their mortgage – and will clear their debt altogether 10 years early.

MoneySavingExpert.com reader Paul explained how he always makes overpayments, so he can pay his mortgage off quicker. He said: “We moved jobs seven years ago, and had to buy a small property to use for work purposes. We managed to get a 100% mortgage, although it was expensive.

“We’ve always listened to you and I set up a small regular overpayment, throw all my overtime money at it, and every day check my bank balance. If there is an odd amount, say I have £1,525.36, that’s either £5.36 or £25.36 put towards the mortgage, budget depending. We’ve saved £35,000 in interest and knocked 10 years off our mortgage (originally 27 years). We’re continuing to plan to get rid of the mortgage altogether ASAP!”