Your monthly amount
£
The same amount is applied to both options below — fair comparison.
yrs
Your mortgage
£
%
yrs
% / yr
Your investment alternative
% / yr
Verdict
£0
Investing pulls ahead
Based on the inputs you've set, here's how the two strategies compare.
Overpay mortgage
£0
Guaranteed, tax-free
Invest in ISA
£0
After-tax value
Year-by-year wealth
Overpay
Invest
Not financial advice. This is a planning tool. The maths is real but it doesn't know your personal circumstances. For decisions involving significant sums, consult an FCA-regulated adviser.
The one thing to understand
Overpayment is a guaranteed, tax-free return at your mortgage rate.
Every £1 you overpay reduces the interest charged on your mortgage for the rest of its term. The "return" is exactly your mortgage interest rate — guaranteed, with no investment risk, and not taxed by HMRC.
The investment alternative gives you an expected after-tax return. Higher than the mortgage rate over long periods on average, but variable, with drawdowns of 20–40% in bad years.
That's the whole comparison. Everything below is the nuance: how UK tax wrappers change the maths, how time horizons change which side wins, and how to think about the risk you're taking on either side.
How the calculator works
Real UK tax. No hand-waving.
WealthR's calculator uses the future-value-of-an-annuity formula for both scenarios — same money in, compounded monthly — then applies UK 2026/27 tax rules to whichever investment wrapper you've chosen.
Overpayment
Compounded at your mortgage rate, tax-free. The "wealth" shown is the saved-interest equivalent — what your bank would have charged you over the comparison period.
ISA
All growth and dividends are tax-free. No CGT, no income tax. The simplest comparison — what you put in compounds at your expected return, untouched by HMRC.
SIPP
Contributions are grossed up at your marginal rate — rUK basic 25%, higher 66.7%, additional 81.8%; all six Scottish bands supported (19% / 20% / 21% / 42% / 45% / 48%). Withdrawals modelled as 25% tax-free, 75% taxed at a default 20% retirement rate.
GIA
Modelled as roughly 70% capital gains and 30% dividends. Annual £3,000 CGT and £500 dividend allowances applied first, then your band-specific rates (10/24% CGT, 8.75/33.75/39.35% dividends).
Cash savings
Interest above your Personal Savings Allowance (£1,000 basic, £500 higher, £0 additional) is taxed at your marginal rate. Useful comparison for emergency-fund-style money you wouldn't risk in equities.
Year-by-year
The chart compounds month by month with proper UK rules at each step — not just a single end-state calculation. Crossover points (where one strategy overtakes the other) are visible directly.
Methodology is intentionally transparent. If you spot something we've simplified too far for your situation — email hello@wealthr.co.uk and we'll either fix it or explain why.
When each strategy tends to win
A quick honest guide.
Overpay your mortgage when:
- Your mortgage rate is 6% or higher — very few investments will beat that net of tax with any reliability
- You're within 5–10 years of paying off the mortgage and you'd value being mortgage-free
- You're risk-averse and would not stay invested through a 30% drawdown
- You've already maxed your pension match and your ISA allowance
- Your fixed rate is ending soon and rates are expected to rise sharply
Invest the money instead when:
- Your mortgage rate is below ~4% and you have a 15+ year horizon
- You haven't yet used your employer pension match — that's free money no overpayment can match
- You haven't used your full ISA allowance (£20,000/yr) and would lose it
- You're a higher or additional rate taxpayer with significant pension contribution headroom
- You can genuinely stay invested through drawdowns — this is the test most people fail in practice
Split the money when:
- The numbers are close and you'd lose sleep choosing one
- You want some of the mathematical upside without bearing all the volatility
- A common split: pension match first, then ISA to allowance, then overpay any remainder
Frequently asked
Common questions, honest answers.
How does the mortgage-vs-ISA comparison work?
The comparison comes down to two returns: overpaying gives a guaranteed, tax-free return equal to your mortgage interest rate; a Stocks & Shares ISA gives a tax-free return that's variable — historically averaging 5–7% real over 20+ years. Where the mortgage rate sits below the expected long-term real return on equities, investing tends to come out ahead in the calculation over long horizons; where the mortgage rate is above ~6%, overpayment tends to come out ahead. The closer the two numbers, the more risk preference, time horizon and behavioural factors weigh on the decision relative to maths. For personalised guidance, an FCA-regulated adviser is the right route.
How does the mortgage-vs-SIPP comparison work?
A SIPP delivers upfront tax relief that boosts the contribution — 25% for a basic-rate taxpayer (£80 becomes £100), 66.7% for a higher-rate taxpayer claiming the extra via Self Assessment (£60 net becomes £100 in the SIPP). On withdrawal, 25% is tax-free and 75% is taxed at the marginal rate in retirement. For a higher-rate taxpayer expecting to retire at the basic rate, the upfront relief mathematically dwarfs a typical mortgage overpayment return. For a basic-rate taxpayer near retirement, the gap is much smaller. The calculator models all four cases — for personal circumstances, an FCA-regulated adviser is the right route.
What is the average return on overpaying a UK mortgage?
The "return" on a mortgage overpayment is exactly the mortgage interest rate, guaranteed and tax-free. In May 2026, a typical UK fixed-rate mortgage is 4.0–5.5%, so overpaying delivers an effective 4–5.5% tax-free return — equivalent to roughly 5–7% gross in an ISA or 6–9% in a GIA after tax. That "return" persists for the full remaining term of the mortgage: each £100 overpayment today reduces the interest charged on the mortgage every year until it's paid off.
Do you pay tax on mortgage overpayments in the UK?
No. Mortgage overpayments are made from already-taxed income, and the interest saved by overpaying is not classified as "income" by HMRC, so there is no income tax, Capital Gains Tax or any other tax on the savings. This is one reason overpayment can compete favourably with investing in taxable accounts — there is no tax drag. (This differs from the US, where mortgage interest is tax-deductible; in the UK, residential mortgage interest is NOT deductible, which makes the maths cleaner.)
How much can I overpay on my UK mortgage without a penalty?
Most UK fixed-rate mortgages allow penalty-free overpayments of up to 10% of the outstanding balance per calendar year. On a £200,000 balance, that's £20,000 per year or £1,667 per month. Products differ — some allow more, some allow none — so checking the mortgage offer is always worth doing. On a lender's Standard Variable Rate (SVR) or a tracker after a fixed period ends, unlimited overpayments are usually permitted without penalty. Exceeding the limit on a fixed deal triggers an Early Repayment Charge (ERC), typically 1–5% of the over-the-limit amount, which generally erases the financial benefit.
What does the maths show at low mortgage rates and high expected returns?
If a low mortgage rate (e.g. 2%) and a high expected investment return (e.g. 8%) held over the full time horizon, the spread between them would compound dramatically over 20+ years — the maths would lean strongly toward investing. The caveats are: (1) markets don't return 8% every year — they average it with significant drawdowns, and the average only gets captured by staying invested through them; (2) when a fixed rate ends, the mortgage rate may shift, which changes the comparison; (3) overpayment is behaviourally easier than investing for many people, which matters because the plan that actually gets followed is the one that delivers results.
How does an emergency fund fit into the comparison?
Liquidity matters. A mortgage overpayment is essentially money locked into an illiquid, single-purpose asset — it can't easily be retrieved if a job is lost, a boiler breaks, or a new car becomes necessary. Some lenders offer "overpayment reserves" that allow drawing back overpaid amounts, but availability and terms vary by product. Most UK personal finance commentary describes 3–6 months of essential expenses in an accessible savings account as a typical emergency fund target before either overpaying significantly or investing aggressively. This is general information, not a recommendation.
How do offset mortgages fit into the comparison?
An offset mortgage links a savings account to the mortgage: the savings balance is "offset" against the mortgage balance, so interest is only charged on the difference. This effectively gives the savings the same "return" as the mortgage rate — with full liquidity (the savings can be withdrawn at any time). For higher-rate taxpayers with substantial savings, offset can be more tax-efficient than holding the same cash externally, because the "return" inside an offset isn't income and isn't taxed (savings interest above the Personal Savings Allowance is). WealthR's calculator doesn't currently model offset mortgages.
How does mortgage rate level change the comparison?
Mortgage rate is the dominant variable in the calculation. A mortgage at 5–7% delivers a guaranteed, tax-free 5–7% on overpayment — mathematically hard to match with investments that don't carry significant volatility. Cash savings rarely exceed that net of tax. To exceed 6% guaranteed and tax-free with investing, gross returns of around 7–9% after fees in a tax-protected wrapper are typically required, which historical equity returns achieve only on average over long horizons. The case for overpayment is materially stronger above 6% mortgage rates than below 4%.
Why do some people overpay even when investing is mathematically better?
Several reasons, all valid: (1) psychological — guaranteed debt reduction feels different from probabilistic investment returns, and that emotional comfort is real value to many people; (2) certainty — overpayment outcomes are knowable, investment outcomes are estimates; (3) behavioural — many people will overpay consistently but would sit in cash if not investing via auto-deposit; (4) life-stage — being mortgage-free reduces required income and stress, which has non-financial value; (5) interest rate risk — overpaying reduces the balance exposed to future rate rises. Which factor matters most varies enormously by individual.
How does mortgage overpayment compare to UK pension contributions?
An employer pension match (e.g. 5% personal + 5% employer) doubles each contribution on day one before any market return — a one-time uplift that mortgage overpayment cannot mathematically match. Beyond the match, the comparison narrows and depends on tax band, the SIPP withdrawal tax position in retirement, and the mortgage rate. The calculator's SIPP option models this directly across all UK and Scottish bands. For personalised guidance, an FCA-regulated adviser is the right route.
What return rate is commonly assumed for long-term UK investing?
A common range for a diversified equity portfolio over 20+ years is 4–6% real return (after inflation). Nominal returns (before adjusting for inflation) are typically quoted at 6–9%. For "today's money" comparisons, 4–6% real is the relevant range; for "nominal" comparisons (actual £ amounts), 6–9%. The WealthR calculator uses nominal terms throughout — so the mortgage rate (also nominal) compares like-for-like. Past 100 years of UK equity returns have averaged around 5% real / 8% nominal, but past performance is not a guarantee.
How does the ISA allowance affect the comparison?
The UK ISA allowance is £20,000 per person per tax year (2026/27). If the monthly investment amount × 12 exceeds this, only part of the contribution gets the full ISA tax shield — the overflow would need to use a SIPP or GIA. For couples, the combined allowance is £40,000 per tax year. For most monthly amounts considered in this calculator (£100–£2,000/month), the full annual contribution stays inside the ISA allowance, so the tax-free comparison holds.
How does the £100k tax trap change the comparison?
Materially. Between £100,000 and £125,140 of taxable income, the UK Personal Allowance is tapered away, creating an effective marginal tax rate of 60% (or 62% with NI). For income in this band, a pension contribution (via SIPP or salary sacrifice) gives effective tax relief of 60–62% — mathematically the most efficient relief in the UK tax system. Mortgage overpayment, which delivers a tax-free return at the mortgage rate, cannot match that on the maths alone. The WealthR salary sacrifice calculator models the £100k band specifically.
What happens when my fixed-rate mortgage deal ends?
When a fixed rate ends (typically after 2, 5 or 10 years), the next rate is either a remortgage at the prevailing market rate or the lender's Standard Variable Rate (SVR), usually 2–4% higher than fixed deals. Either way, the "overpayment return" resets to the new rate, which changes the maths. The comparison in this calculator is worth re-running annually, particularly in the months leading up to a fixed-rate end.
Is this calculator giving me financial advice?
No. WealthR is a planning tool, not a regulated financial adviser. The calculator shows the mathematical outcome of a comparison based on the assumptions entered — it does not assess personal circumstances, risk tolerance, goals, or full tax situation. For decisions involving significant sums or complex circumstances (e.g. nearing retirement, business owners, blended families), consult a qualified FCA-regulated financial adviser. WealthR helps with understanding the maths; the decision is yours.
Does this calculator handle Scottish tax bands?
Yes. The tax band dropdown includes all six Scottish bands for 2026/27 — Starter (19%), Basic (20%), Intermediate (21%), Higher (42%), Advanced (45%) and Top (48%) — alongside the three England/Wales/NI bands. Scottish bands are used for the SIPP gross-up calculation: a Scottish higher-rate taxpayer (42%) sees a larger upfront tax-relief boost on pension contributions than a rUK higher-rate (40%) taxpayer. UK-wide rules that apply regardless of region: (1) Capital Gains Tax and dividend tax aren't devolved — same UK rates apply in Scotland; (2) savings interest is also taxed at UK rates, not Scottish, and the Personal Savings Allowance follows UK income bands. For Scottish bands above the rUK higher-rate threshold, the calculator maps to the nearest UK band for CGT, dividend and PSA purposes — accurate for the vast majority of users.
How accurate is the SIPP tax modelling?
The calculator uses simplified but realistic UK SIPP tax rules: contributions are grossed up at the current marginal rate (25% boost for basic-rate, 66.7% for higher-rate, 81.8% for additional-rate), and withdrawals are modelled as 25% tax-free + 75% taxed at a default 20% retirement marginal rate. Real-world SIPP outcomes can differ slightly due to: (1) the Lump Sum Allowance cap of £268,275 on tax-free withdrawals, (2) drawdown strategies that drip-feed withdrawals to manage marginal rates, (3) the IHT changes coming in April 2027 (see WealthR's IHT on Pensions tool). For SIPPs under £1m, the calculator is generally accurate within ±2–3%.
Why does the GIA option look worse than the ISA?
A General Investment Account (GIA) is taxable: capital gains above the £3,000 annual CGT allowance are taxed at 18% or 24% (basic / higher rate), and dividends above the £500 annual Dividend Allowance are taxed at 8.75%, 33.75% or 39.35% by band. For meaningful monthly contributions over many years, the allowances get exhausted quickly and effective tax drag can be 1–2 percentage points per year. An ISA holds the same underlying investments with all gains and dividends tax-free, so the long-run difference can be very large — often £20,000–£50,000+ over 20 years on modest contributions.
What does a split between overpaying and investing look like?
Splitting captures some of the upside of investing while reducing exposure to volatility, and it satisfies both the maths and behavioural sides of the decision. Common splits observed in UK personal finance communities include 50/50, 70% pension + 30% mortgage, or "invest until ISA allowance is full, then overpay". The right balance varies enormously by individual — how much certainty matters versus how much expected wealth matters. The WealthR calculator shows the two extremes; a 50/50 split lands roughly halfway between them.
Other free UK calculators
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