As we look ahead to 2026, it’s the perfect moment to step back and review your finances. With interest rates, investment markets and household budgets all having shifted over recent years, many homeowners are reassessing their financial priorities. You may be wondering whether now is the right time to invest, build savings, or focus on reducing debt – including weighing up whether any spare cash is better used overpaying your mortgage, or investing for long-term growth and pension and retirement planning.

 

Option 1: Overpaying your mortgage – a guaranteed return

UK mortgage rates rose sharply after 2021 as the Bank of England began raising its Bank Rate, with interest rates more than doubling the levels at the start of 2021. Interest rates remained high until the Bank of England began reducing interest rates in August 2024, with several cuts since then, the most recent being 3.75% in December 2025.

Overpayments are particularly appealing to those on higher fixed mortgage terms, as well as variable deals.

Overpaying your mortgage offers a risk-free return equal to your interest rate. If your rate is 5%, every £1,000 overpaid effectively ‘earns’ £50 a year in saved interest. Regular overpayments can shorten the mortgage term and save thousands of pounds in interest over time, while reducing your balance and improving future borrowing options.

There is also an emotional benefit, seeing your mortgage shrink faster brings peace of mind and the satisfaction of moving closer to being debt-free.

The trade-off is flexibility. Once overpaid, the money is tied up in your property and can’t be easily accessed if circumstances change.

 

Option 2: Investing – higher potential, more risk

Building financial resilience isn’t just about putting money aside – it’s about creating a savings and investments plan that grows with you and supports your goals. Investing through a Stocks & Shares ISA or pension offers greater long-term growth potential, though with more volatility.

The FTSE All-World Index, a broad measure of global stock market performance, has delivered around 7-8% a year over recent decades, compared with UK mortgage rates averaging 4-5% long term. The main advantage comes from compounding, earning returns on both your contributions and previous gains, which can significantly boost investment values and help protect savings against inflation over time.

Funds held in ISAs or pensions can later be used to reduce or clear your mortgage, while benefiting from tax-efficient growth, the flexibility to access if needed within an ISA, or tax relief on pension contributions.

Ultimately, the decision often comes down to opportunity cost, whether your spare cash could work harder in the markets than it would paying down your mortgage.

 

To overpay your mortgage or to invest – which option is right for you?

Overpaying your mortgage may suit you if:

• You are close to retirement or are risk averse.
• You value guaranteed savings and peace of mind.
• Your mortgage rate is high, often linked to a high loan-to-value ratio, where overpayments can help you move into a lower rate band sooner.

 

Investing your spare cash could be better if:

• You have a long-time horizon (10+ years).
• You can tolerate market ups and downs.
• You want to maximise ISA or pension growth.

 

The best decision depends on your personal goals, circumstances, and attitude to risk. Taking expert advice can help ensure you choose the approach that works best for you.

 

Unsure which route to go down?

At Omny Personal Finance, we can help you compare how overpaying your mortgage or investing could shape your financial future.

Speak to an Omny Financial Planning Advisor to explore your options and find the right approach for you.

 

 

Past performance is not a guide to future returns; investments can fall as well as rise. You may not get back the amount invested. This article does not constitute financial advice.