Answers · UK 2025/26

Should I overpay my mortgage or save in an ISA?

Compare rates. If your mortgage rate exceeds your achievable ISA return (after tax), overpaying wins. With 4.5% mortgage vs 4.5% Cash ISA — basically equal. With 6% mortgage vs 4.5% ISA — overpay. With 4% mortgage vs 7% expected S&S ISA — invest, but accept investment risk.

Last updated: 6 April 2025Last reviewed: 6 April 2025How we verify

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UK overpay mortgage vs ISA framework 2025/26. Maths principle: overpaying a mortgage gives a guaranteed return equal to your mortgage rate. Cash ISA gives a guaranteed return at the ISA AER. S&S ISA gives an expected (not guaranteed) higher return with volatility. After-tax comparison: for basic-rate taxpayers in Cash ISA, no tax (ISA wrapper). For higher-rate taxpayers in regular savings, the £500 PSA may not cover all interest, so ISA wrapper is more beneficial. Decision matrix (mortgage rate vs Cash ISA rate). Mortgage > ISA + 1%: clear win for overpaying. Mortgage = ISA ± 0.5%: roughly equal — pick based on flexibility (ISA keeps cash accessible). Mortgage < ISA by 1%+: ISA wins (and overpaying funds become locked in your home). S&S ISA vs overpaying: historically equities return ~5% real over long periods. If your mortgage is 4% and your investment horizon is 10+ years, expected S&S ISA return beats overpaying — but variance is high; sequence-of-returns risk near retirement. Hybrid approach: many overpay 50% and save 50% as a balanced compromise. Don't forget: Early Repayment Charge (ERC) on overpayments above 10%/year typically 1-5%. Pay-off psychology: many people overpay even when ISA wins, for the psychological comfort of being mortgage-free — that has real value.