Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in, and we will get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at [email protected].
Question: My fixed-rate mortgage ends later this year. I’m on a rock-bottom rate of below 2 per cent and have spare cash. Should I be overpaying now, or would I be better off keeping the money in savings?
Answer: This year marks the point where a lot of those five-year, ultra-low fixed rates start to drop off. They insulated borrowers from the volatility we’ve seen in the mortgage market, but they also create a new decision point: you may have built up savings while your monthly payment was cheap, and now you’re looking at a higher rate when you remortgage.
The real question isn’t “overpay or save” in isolation. It’s what leaves you in the strongest position when your new deal starts.
If we start with the basic maths, saving often wins while you’re still on a very low fixed rate. A good savings account can pay more than your mortgage is costing you today, so on paper it can feel inefficient to overpay early. Tax can narrow that gap, though.
Basic-rate taxpayers have a £1,000 personal savings allowance and higher-rate taxpayers have £500, after which savings interest is taxable. So, it’s worth thinking in net terms, not the headline rate. Even then, for many borrowers, the case for holding cash back is still strong.
But I wouldn’t reduce it to a rate comparison, because overpaying can be valuable in ways that aren’t captured by a simple “which rate is higher” test.
First, it reduces the balance you’ll carry onto a higher rate, which can soften the jump in monthly payments. It won’t stop payments rising if your new rate is materially higher, but it can make the transition easier to absorb.
Second, it reduces the total interest you pay over the life of the mortgage and can bring forward your debt-free date. If you have a clear goal – for example being mortgage-free by a certain age, or before retirement – steady overpayments can be a disciplined way of keeping that plan on track.
Third, and often most importantly in the short term, it can improve the pricing available on your next deal if it strengthens your loan-to-value position. Lenders tend to price in bands, and the difference between two bands can be meaningful over a two or five-year fix. The key point is that overpayments only help here if you’re genuinely close enough to a boundary for it to make a difference.
That’s where reality-checking your numbers matters. I speak to plenty of borrowers who assume they’re “around” a certain loan-to-value because they’re working off an old valuation, or a rough estimate of where prices have gone. If you’re going to overpay with the aim of improving your next deal, you need to know your current balance, have a sensible view of the property value, and understand whether the gap you’re trying to close is realistic in the time you have left.
The main downside of overpaying is access. Cash in a savings account is flexible. Money paid into the mortgage generally stays there until you refinance or move, and pulling it back out later isn’t always straightforward.
That matters even more when you’re approaching the end of a low fixed rate, because your monthly payment may rise and your budget may feel tighter than it has for years. In that context, keeping a sensible buffer is part of good planning, not indecision.
A practical approach that works for a lot of borrowers is to keep the cash in savings for now but treat it as allocated. It’s “mortgage money”, but it remains accessible if you need it. As you get closer to completion, you can then decide whether to use a lump sum to reduce the loan or keep more cash back and accept a slightly higher balance.
Offsets can also sit neatly in this space for some borrowers, because savings reduce the interest charged while staying accessible, but they need comparing properly against standard fixed-rate deals and fees.
This is also where advice earns its keep. A broker can model the options based on your circumstances: how close you are to better pricing bands, what the payment change could look like, what you can comfortably afford, and what you want the money to do.
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Some borrowers prioritise the lowest monthly payment. Others are happy to pay more if it shortens the mortgage and fits a debt-free goal. Some value liquidity above everything because their income can fluctuate. The right answer depends on that mix.
If you want a simple steer, it’s this: protect your emergency fund first. If you’re clearly within reach of an LTV improvement, targeted overpayments can be sensible.
Otherwise, I’d generally prioritise keeping cash accessible until you’re closer to remortgage completion, then decide how much to deploy. The bigger risk I see is not saving versus overpaying. It’s leaving the review too late, drifting onto a lender’s stand variable rate, and paying more than you need to because the timing wasn’t managed.
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