Overpay the mortgage or pay more into your pension? How the numbers compare

The short answer: In 2026/27, money paid into a pension gets tax relief of 20%, 40% or 45%, plus any extra your employer adds. That often beats the interest you'd save by overpaying a mortgage. But pension money is locked away until 55, or 57 from April 2028. Overpaying gives a sure saving at your mortgage rate.

Is it better to overpay my mortgage or pay more into my pension?

For many people, paying more into a pension comes out ahead on the numbers. Overpaying the mortgage wins on certainty and on access to your home's value. It depends on four things: your tax band, any employer top-up, your mortgage rate and when you'll need the money.

Here's why the pension often has a head start. When you pay into a personal pension, your provider claims tax relief at the basic 20% rate and adds it to your pot. So £80 from you becomes £100 in the pension straight away. If you pay 40% or 45% tax, you can claim more back. And if you're in a workplace pension, your employer must pay in at least 3% of your earnings.

MoneyHelper puts it simply. With employer money and tax relief, you might get more for your money in a pension than you'd save in mortgage interest.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

A mortgage overpayment, on the other hand, can't fall in value. Every pound you pay off stops costing you interest at your mortgage rate. That's a sure thing, and some people sleep better for it.

Assumes a personal or workplace pension with relief at source and a standard repayment mortgage. Rates are for England, Wales and Northern Ireland.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

How much does pension tax relief add?

It depends on the rate of Income Tax you pay. The basic 20% goes in automatically. Higher and additional rate taxpayers claim the rest through Self Assessment.

The government says you can claim an extra 20% on income you've paid 40% tax on, and 25% on income you've paid 45% tax on. Here's what that means for £1,000 going into your pension in 2026/27:

Bands from GOV.UK Income Tax rates, with the standard £12,570 Personal Allowance. Assumes all £1,000 is matched by income taxed at that rate. Scottish bands are different, and so is the relief.

There are limits. You get relief on payments up to 100% of your yearly earnings. Most people can pay in up to £60,000 a year in total, and may carry forward unused allowance from the last 3 tax years. Our guide to how pension tax relief works walks through it step by step.

How much does overpaying a mortgage save?

Overpaying cuts the amount you owe, so you pay less interest from then on. You can usually choose to shorten your mortgage or lower your monthly payments.

MoneyHelper gives an example: on a £250,000 mortgage at 5% with 25 years left, a £5,000 lump sum cuts the interest by £11,970 and clears the loan 11 months sooner. If your interest is worked out daily, the sooner you overpay, the more you save.

Before you overpay, check two things:

1. Your overpayment limit. Many lenders let you overpay up to 10% a year without a penalty. Allowances vary. Nationwide, for example, sets 10% a year of the original loan on many deals, and no limit on trackers.

2. Early repayment charges. If you go over your allowance in a year, you'll usually pay an early repayment charge. That can wipe out much of the saving.

The rate you pay matters too. The Bank of England held Bank Rate at 3.75% on 17 September 2026, with the next decision on 5 November. A fixed deal won't move until it ends, but a tracker or variable rate can.

Example: £8,000 into the pension or off the mortgage

Here's a made-up example to show how the sums can play out. Sam has £8,000 to spare and 20 years until they plan to stop work. Their mortgage rate is 4.5%. None of these figures are a forecast.

Option 1: overpay the mortgage. The £8,000 saves interest at 4.5% a year. If the rate stayed the same for 20 years, that's like growing the money at 4.5% with no tax. It ends up worth about £19,300.

Option 2: pay into a pension. Sam pays £8,000 and the government adds £2,000, so £10,000 goes in. Later, Sam can usually take up to 25% tax-free. The rest counts as income and is taxed if your total income is over your Personal Allowance. If Sam pays 20% tax in retirement, they keep about 85% of the pot.

Made-up figures. Assumes basic-rate relief now, basic-rate tax in retirement, a fixed 4.5% mortgage rate and steady growth. Real returns go up and down.

So for a basic-rate taxpayer with no employer money, the mortgage wins unless the pension grows faster than the mortgage rate. Now say Sam pays 40% tax. They can claim another £2,000 back, so the same £10,000 pension costs them just £6,000. Put that £6,000 off the mortgage instead and it's worth about £14,470. The pension wins at 3% and at 5%.

Want to try your own numbers? Our flexible pension calculator shows how different payments could grow.

When does overpaying the mortgage make more sense?

Overpaying tends to look better when the sure saving beats what the pension is likely to add. Some signs:

• Your mortgage rate is high and you pay basic-rate tax.

• You already get your full employer match.

• You want to be mortgage-free before you can touch a pension.

• You'd rather have a guaranteed result than an invested one.

• You have a flexible or offset mortgage, so you can take overpayments back out if you need them.

Timing is a big one. You usually can't take money from a pension until 55 at the earliest. That rises to 57 from 6 April 2028. If you'd like the mortgage gone at 50, pension money won't help you get there.

Why don't experts agree on overpaying a mortgage?

Because the answer turns on things nobody knows for sure: future interest rates, investment returns and your tax band in retirement. Change one and the winner can flip.

A few more things pull in different directions:

• Tax in retirement. If you pay less tax later than now, the pension looks better.

• Inheritance. From 6 April 2027, most unused pension funds will count towards your estate for Inheritance Tax. Tax is normally due at 40% on an estate above £325,000, though the threshold can be higher if you leave your home to children.

• Peace of mind. A smaller mortgage means lower bills if rates rise later. That's worth something, even if a spreadsheet can't price it.

That's also why many people split the difference and do a bit of both.

What should I sort out first?

Get the basics in place before choosing between the two. MoneyHelper suggests these steps:

1. Clear expensive debts. Pay off costly debts like credit cards before your mortgage.

2. Build a cash buffer. Keep enough to live on for at least three months. Our guide on making room for a cash buffer and pension saving shows one way to do both.

3. Take any free employer money. If your employer matches extra payments, that's hard to beat. Ask too about salary sacrifice, which can mean you and your employer pay less tax and National Insurance.

4. Think about cover. If others rely on you, life insurance is relatively low cost.

5. Then split what's left. Decide what mix of pension and mortgage suits your plans.

If you're weighing up an ISA too, our guide to ISAs and pensions side by side compares them.

Still got questions?

What is the mortgage overpayment trick? It's usually just paying a little extra each month or a lump sum now and then. Even small amounts cut the interest, as long as you stay within your lender's overpayment allowance.

Is 50 a good age to pay off a mortgage? It can be, if you can afford it. But in the UK you usually can't take pension money until 55, rising to 57 from April 2028. So pension savings can't clear a mortgage at 50.

Can I do both? Yes. Lots of people pay enough into a pension to get the full employer match, then overpay the mortgage with some of what's left.

I'm self-employed. Does this change anything? There's no employer top-up, but you still get tax relief on personal pension payments. Higher-rate relief is claimed on your Self Assessment return.

Should I stop paying into my pension to overpay? Think carefully. If you leave a workplace pension, you may lose your employer's payments too. For a personal answer, speak to a regulated financial adviser.