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Martin: 'Should you overpay your mortgage with any savings or spare cash? My eight need-to-knows to decide (some can gain £10,000s)'

UK base rates were cut again last month to 3.75%. Market expectations are for further cuts to below 3.5%, with some analysts even saying 3% by the end of 2026. On the back of that, many savings rates are edging down. Yet while the cost of new fixed-rate mortgages are now down to 3.5%, those already locked into two, three or five-year mortgage fixed deals won't see their rate move until the fix ends. So, it's a good time for those lucky enough to have savings, or spare cash, to examine whether you can and should overpay your mortgage...

1. Do you have more expensive card, loan or overdraft debt? If so, they're generally worth prioritising using spare cash to clear ahead of your mortgage. See Should I overpay cards & loans?

2. If your mortgage rate's higher than the interest you can earn in savings, overpaying adds up. Here's a simplified example: £10,000 saved at top 4.5% savings earns £450 interest (£360 for those who pay basic-rate tax on it), yet use it to overpay a 6% mortgage and it saves you £600 interest. So using savings to overpay makes sense. It's a bit like saving, tax-free, at the mortgage rate. Then again, if you're still on a legacy cheap mortgage at 1% or 2%, there's no point in overpaying that for now (see point 7). Use our Mortgage Overpayment Calculator, which shows both your absolute gain from overpaying and the relative gain compared to putting money in savings.

As Deb emailed last year: "Hello! I wanted to say a huge thank you. This afternoon I redeemed my mortgage 11 years early, thanks to your site! Nearly 14 years ago, I was a single mum, buying my first property. I was pretty feckless when it came to understanding financial terms. Then I read that you advised overpaying on a mortgage, if possible, and happily and fortuitously I have been able to make lump sum pay offs over the years and now, aged 57, I feel I can relax and even contemplate retirement. Raising a glass to you and your team, Martin, tonight! Heartfelt thanks."

3. Yet compare YOUR best possible mortgage against YOUR best possible savings. If your mortgage could be better and you're free to move, then check what the best rate you're likely to get is. Use our Mortgage Best Buys comparison for a benchmark, and free Remortgage guide for step-by-step help.

The same's true with savings. If your accounts pay a paltry rate, as too many do, it's easy to ditch and switch (unless they're locked away in a fix). On lump sums, you can earn up to 4.5% in top savings and 7% on regular savings up to £300/mth, so that's what you should be comparing with.

4. TWO KEY CHECKS before you act. If overpaying looks a winner, check... 

1. Are there overpayment penalties? Many lenders let you annually overpay 10% of your mortgage balance penalty-free. Above that, there are often penalties, which could wipe out much of the gain, so do check.
2. Always keep a cash emergency fund. The fact you've overpaid your mortgage doesn't automatically mean if circumstances change and you suddenly can't repay, the lender will say 'oh, no probs' - you'd still be in arrears. So my rule of thumb is always have enough money to cover 3 to 6 months' bills accessible in savings, and only overpay with any money above that (unless it's a specific offset mortgage).

5. Got under 40% equity in your home? Even where the maths doesn't quite add up, overpaying may pay. If you can save at a higher rate than your mortgage, use our Mortgage Overpay vs Savings Calc to see the pound-for-pound difference. If savings are substantially better, save. Yet if they're only marginally better and your mortgage borrowing is over 60% LTV (loan-to-value) - the proportion of your home's current value you're borrowing - reducing your mortgage debt may lower the rate of future remortgaging offers (ie, when you get a new deal). With 1.8m fixed-rate deals ending this year, it's a consideration for many. See the LTV thresholds that may improve mortgage rates.

6. When overpaying, ensure the overpayments reduce your TOTAL MORTGAGE BALANCE (ie, reducing the term). Overpay and some lenders just reduce your next or future monthly repayments. That may help your future cash flow, but you won't see a big reduction in what you pay overall. That comes from ensuring overpayments reduce your mortgage balance while keeping the same monthly repayment. This has the practical effect of helping you clear your mortgage sooner, resulting in an interest (and time-saving) gain.

So, when you overpay, tell the lender you want it to reduce the capital owed and/or the mortgage term and keep your monthly repayment the same. To be clear, that's NOT saying ask to reduce your term - that'll often need an affordability test. The priority is that what you repay reduces your mortgage balance and you keep up the same contractual repayments, so you'll be mortgage-free quicker (see my now very old Decrease term or overpay? blog for the general concept). If your lender makes this difficult by recalculating your monthly repayments, then just ensure you keep paying what you were or more (so effectively overpaying each time) and it'll have the same impact.

7. Still on a very cheap mortgage rate? Save the right way. If you're one of the few where your mortgage rate is still really cheap, say 1% or 2%, then you'll likely be better off in top savings. Yet it's worth being aware that at some point that deal will end and your new mortgage costs will likely be much higher. 

So you may want to consider having savings available at that point to reduce what you'll need to borrow. To do that, you'll want money in easy-access savings. This doesn't mean you can't use fixed savings before then, just make sure they mature just before your mortgage fix ends.

8. What about overpaying the mortgage vs investing? That's a much trickier call. If we're talking about money you don't and won't need for at least five years (which is when investing comes into its own and should be the prime option), then if your mortgage rate is low and likely to stay that way, investing looks more attractive. If your mortgage rate is higher, it's less so. The balance is a personal call based on risk attitudes (a bit of both is probably the right answer), I discussed this 'ponderable' in my Question Time podcast last week.

You may know your Credit Score but have you checked your Credit FILE? That's what really counts.
'Problem sorted, thanks MSE. I'd never have fixed the bogus missed payments ruining my creditworthiness otherwise'

Contrary to what many believe, in the UK you don't actually have a universal Credit Score - no one number that dictates whether lenders will lend to you. Instead, each lender scores you based on its own wish list of what makes a profitable customer (the Credit Scores you get are just a credit agency's estimate of how a typical lender may view you). 

When a lender assesses you, it's aiming to predict your future behaviour based on your past. Most use three pieces of info for that: i) Your application form; ii) Any past dealings they've had with you; iii) Your Credit File/Report. And it's absolutely crucial you check your Credit File, as the email we just got from Andrew shows. 

The easy way to do all this is via the free MSE Credit Club (even better do it via the MSE App on iOS or Android). This provides your unique Credit Eligibility Rating, Credit Score, Affordability Score, help to improve them and, of course, your Credit File - as well as all our help and explanations. Now, though, let's focus on Credit Files/Reports...

• What's on a Credit File? The report covers electoral roll information, any County Court Judgements (CCJs) about you (for debt, bankruptcies etc), and your detailed payment history with all credit products. See what credit reference agencies know about you.
  
  
• Check your Credit REPORT for errors at least annually - incorrect info can torpedo acceptance. Go through line-by-line looking for any error, even a simple one, such as an unused but still open credit card account at the wrong address, or a default unfairly marked as paid late. 
  
  
• Check at least one of the three agencies, and all three if you've an imminent big application. There are three credit reference agencies (CRAs): TransUnion, Equifax and Experian. All have files on you and they will be pretty similar but may not be identical. If you're just doing an annual financial housekeeping check-up, use one, as if you find an error, the lender with the wrong information should communicate any correction with the other CRAs (but it's often a good idea to contact the lender directly to make sure this happens). If you've an important application to do soon, like a mortgage, best to check all three.
  
  You have a legal right to get a free statutory report from them, though it isn't always that simple or quick, but there are lots of ways to get it for free anyway. Our How to check your Credit Report for free guide has full info but in brief:
  
  - TransUnion's Credit Report: Available as part of our free MSE Credit Club or TransUnion
  - Equifax Credit Report: Free via ClearScore* or Equifax Basic
  - Experian Credit Report: Free via the Experian app or its statutory credit report. 
  
  
• Spot an error on your Credit Report? You can dispute it. If you notice anything wrong in your Credit Report and want to challenge the information, all CRAs allow you to raise a dispute (you can do this via MSE Credit Club too) via your account or by emailing/calling. Before you do it prepare your evidence, including supporting screenshots or documents.
  
  Any information that's in the process of being disputed will be flagged as such on your Credit Report so other lenders can see, and should be resolved within 30 days. However, if the lender or company you're in dispute with refuses to update its info, and disagrees, there are two steps you can take... 
  
  - Short term: If the error on your file looks bad to lenders, you can add a 'Notice of Correction' to the item. This is a short statement giving some context to the problem, eg "it's a debt for an item I never received, I'm disputing it". This will likely slow down your applications, as lenders may do manual checks. 
  - Longer term fix: Complain to the firm asking for it to remove the error, explaining why you think its unfair. If it rejects, you can make a formal complaint to the relevant ombudsman - the Financial Ombudsman Service for complaints about financial firms, the Energy Ombudsman for complaints about energy suppliers or the Communications Ombudsman for issues with broadband, mobile bills - as they have the power to order firms to remove the info from your credit file. More help in fight credit report errors.