If you’ve got extra money each month – or a lump sum sitting in your account – you might be wondering whether to pay off your mortgage, save it, or invest it.
It’s not always a simple numbers decision. None of these choices is wrong – the right option depends on what feels sustainable for you.
In this guide, we’ll walk through the pros and cons of each option.
If you’ve got spare money, deciding what to do with it can feel tricky. Each option does something different:
You don’t always have to choose just one path. Many people combine approaches – for example, making small overpayments while building savings, or investing once they’ve got a safety net in place.
If you want a quick sense-check of what your mortgage looks like today, a remortgage calculator can help you explore different scenarios. It gives you estimates, not a mortgage offer.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Before deciding, it can help to ask yourself:
Answering those questions can make it much clearer which option – or mix of options – fits you best.
For many people, the biggest upside of paying off their mortgage early is certainty. Once the balance comes down, it stays down.
Overpaying reduces the amount of interest you pay over time, because interest is charged on the remaining balance. For example, if you have £150,000 left, reducing that balance means you stop paying interest on the portion you’ve cleared. That benefit doesn’t depend on market performance.
When you overpay, tell your lender what you want the extra money to do:
If becoming mortgage-free sooner is the goal, reducing the term is usually what people choose.
Paying off your mortgage early can also help bring your loan-to-value (the ratio of your loan to the property's value) down over time, which may give you more options when your current deal ends.
If you’re thinking about making regular overpayments or using a lump sum, it’s worth understanding how overpaying a mortgage works in practice.
One of the main drawbacks of paying off your mortgage early is access to your money. Once cash is tied up in your home, it’s not easy to get it back if your income changes or unexpected costs come up.
Another key consideration is early repayment charges (ERCs). Many lenders allow overpayments of up to around 10% of the remaining balance each year during a fixed period without a fee, but this varies by deal.
If you go beyond that limit, you could be charged a fee. For example, a 5% ERC on £250,000 would mean a £12,500 charge. That doesn’t automatically make overpaying a bad idea – but it does mean the costs need checking first. This is just an example, actual fees depend on your lender and mortgage terms.
You can find more detail on how these fees work in our guide to early repayment charges.
Before overpaying, it’s sensible to check:
When you pay off your mortgage early in the UK, your lender closes the mortgage account and arranges for their charge to be removed from the property register. Your monthly mortgage payments stop, and you own your home outright.
It’s worth keeping expectations realistic. Owning your home outright doesn’t mean housing costs disappear – you’ll still need to budget for maintenance, insurance, council tax, and utilities.
For some people, being mortgage-free brings peace of mind. For others, keeping some borrowing can feel more practical if it means their cash stays accessible.
For most homeowners, there’s no direct tax benefit to paying off a mortgage early.
Mortgage repayments aren’t tax-deductible in the UK, and clearing your mortgage doesn’t create a tax charge either. From a tax point of view, it’s usually neutral.
There are a couple of indirect points worth keeping in mind:
Tax is rarely the deciding factor on its own. If the property is a buy-to-let, the rules can be different and more complex, so tailored advice is often needed.
Some people choose to invest spare cash rather than pay off their mortgage early, especially if they’re thinking long term.
Over time, investments may grow more than the interest saved on a mortgage – particularly if your mortgage rate is relatively low and you don’t need the money soon.
Also, unlike mortgage overpayments, investments are usually easier to access if your plans change.
Investing involves uncertainty. Returns aren’t guaranteed, and values can go down as well as up. If you need the money in the next few years, a market downturn could leave you worse off than expected.
There’s also an emotional side to consider. Seeing investments fluctuate can be stressful, particularly while you’re still making mortgage payments.
Investment values can go down as well as up, and returns aren’t guaranteed.
Saving might feel less exciting than investing or overpaying your mortgage, but it offers something neither can: flexibility.
Keeping money accessible can be reassuring if your income changes, unexpected costs come up, or you have short-term plans ahead.
Many people prioritise saving so they can:
It’s often sensible to have a solid emergency fund in place before committing extra money to your mortgage or investments. That way, progress in one area doesn’t come at the cost of security in another.
For some, saving is also a way to keep options open while deciding whether to overpay, invest, or combine both.
Where you are in life can shape your decision. This isn’t just about age. It’s more about income certainty, responsibilities, and how much flexibility you need.
You may lean towards saving or investing if:
Paying off your mortgage may feel more appealing if:
The amount you have available matters too. With smaller amounts, flexibility often comes first. Regular, manageable overpayments can still help without stretching your budget.
With larger lump sums, it may be possible to combine approaches – reducing your mortgage, keeping some cash aside, and investing part of the money long term.
The aim is balance. A choice that feels sustainable usually works better than one that only looks good on paper.
Investing is usually a long-term play. Instead of lowering today’s outgoings, it’s about giving your money time to grow – with the understanding that values can go up and down along the way.
It may suit you if:
Time matters here. The longer your money stays invested, the more chance it has to recover from market bumps. Simple in theory – but only if you won’t need the cash soon.
That said, investing isn’t just about potential returns. It’s also about how you feel about risk. Some people are happy riding out volatility; others sleep better knowing their money is reducing debt.
If investing feels stressful right now, that’s a signal in itself. Building wealth doesn’t have to mean doing everything at once – choosing a steadier option for now can still be a sensible step.
This article is for general information only and isn’t personal financial or investment advice.
If you’re stuck between paying off your mortgage, saving, or investing, getting a second pair of eyes can help – not because there’s one “right” answer, but because the details matter.
A mortgage broker can help you understand how overpayments work on your current deal, whether early repayment charges apply, and whether sticking, switching, or waiting makes sense. You can find out more about what independent mortgage advice involves.
It can also help to sense-check the numbers before making a decision. Using a mortgage calculator can show how overpayments might affect your monthly payments and the total interest you pay over time – without committing to anything.
The aim is clarity. Knowing how your options play out can make the decision feel calmer and more confident.
Even when you’re deciding what to do with spare money, it’s worth remembering that a mortgage is secured against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Should I pay off my mortgage, save, or invest?
There’s no single right answer. Paying off your mortgage reduces debt, saving keeps money accessible, and investing aims to grow your money over time but comes with risk. What works best depends on your income stability, risk tolerance, and whether you already have savings. Many people choose a mix rather than just one option.
How does paying off my mortgage affect my taxes?
For most UK homeowners, paying off a mortgage early has no direct tax impact. Mortgage repayments aren’t tax-deductible, and clearing your mortgage doesn’t trigger a tax charge. Any tax differences usually come from what you do instead – such as earning interest on savings or investment returns.
Can I pay off my mortgage and still save or invest?
Yes. You don’t have to choose only one. Some people make small, regular overpayments while continuing to save or invest, as long as it doesn’t stretch their finances or reduce their emergency buffer.
What happens when I pay off my mortgage early?
Your lender closes the mortgage account and arranges for their charge to be removed from the property register. Your monthly mortgage payments stop, but you’ll still need to budget for ongoing costs like maintenance, insurance, council tax, and utilities.
Is it better to save or pay off my mortgage?
That depends on your priorities. Saving may suit you if flexibility matters or your income could change. Paying off your mortgage may feel better if reducing debt and monthly outgoings brings peace of mind. Some people save first, then overpay later.
What could be the drawbacks of paying off your mortgage?
The main drawbacks are reduced access to your money and possible early repayment charges. Money paid into your mortgage is tied up in your home, and some deals limit how much you can overpay without a fee. It’s always worth checking your mortgage terms first.
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