Question 1

The like-for-like comparison: how it's fair

Accepted Answer

Both strategies start with the exact same total monthly outgoing: your standard mortgage payment plus the overpayment amount. This ensures the comparison is based purely on the destination of your cash, not how much you save. Strategy A (Overpay): Extra £500/mo reduces the principal. This earns a guaranteed return equal to your mortgage rate. Once the mortgage is cleared early, the full previous monthly payment is redirected into investments. Strategy B (Invest): Standard mortgage payments only. The extra £500/mo goes into an investment portfolio for the full term of the mortgage. Net wealth in both scenarios = property equity (value − remaining loan) + investment pot. The comparison runs until the end of your original mortgage term.

Question 2

How tax affects the result

Accepted Answer

If you are investing inside an ISA or SIPP, your returns are tax-free (0% tax). However, if you are using a standard brokerage account (GIA), you may owe Capital Gains Tax or Dividend Tax. The "Annual tax drag on growth" setting allows you to model this drag. The calculator applies the tax monthly to your investment growth, reducing your effective compound rate. This often makes overpaying more attractive as the interest saved on a mortgage is effectively a "tax-free" gain. One consequence worth knowing: because mortgage interest saved is never taxed but investment growth can be, with any tax above 0% the two strategies are no longer identical even when your investment return exactly equals your mortgage rate, as overpaying carries a built-in tax advantage. That's also why the break-even return below rises above your mortgage rate once tax is added. Tax model: The tax drag is applied monthly to investment growth, as a simplified proxy for ongoing dividend/CGT liability. It is more conservative than modelling CGT-on-exit alone. Inside an ISA or SIPP, set this to 0%.

Question 3

The break-even rate: what it means

Accepted Answer

The break-even rate is the annual investment return at which both strategies end with equal net wealth after your mortgage term. With no investment tax this equals your mortgage rate; adding tax pushes it higher, because investment growth is taxed but the interest saved by overpaying is not. If you believe the market will return more than the break-even rate, investing is mathematically superior. If not, overpaying wins. The break-even rate is found with a "binary search" that runs both simulations across a range of return rates and narrows in (a fixed number of steps) on the rate where their final wealth matches.

Question 4

What this tool doesn't model

Accepted Answer

For simplicity, this model excludes: Early repayment charges (ERCs): Most fixed-rate mortgages allow 10% overpayment per year. Exceeding this triggers a charge, and the calculator warns you when you might hit this limit. Psychological value of being debt-free: Many people strongly prefer the security of owning their home outright, which is a benefit not captured in the numbers. Property value changes: Net wealth includes equity, but property value is held constant. Changes in property prices affect both strategies equally, so they cancel out in the comparison.

Overpay your mortgage or invest instead?

Net wealth over time

How the calculator works

See your mortgage and investments in one place.