As savings interest rates have risen and mortgage rates fluctuate, the issue has become more complicated.
But, in the latest edition of his Martin Lewis podcast, the Money saving Expert founder has reduced it to a few core principles.
“Pay off expensive debt before you even think about saving”
Lewis starts with a key rule: “You should always pay off expensive debt before saving.”
So, for credit cards, that means: “If your credit card is costing you 20% and your savings are earning 4%, you gain 16% by clearing the debt.”
And crucially: “Once you pay the credit card off, it can sit there at a zero balance… and if you had an emergency, you could just borrow back.”
Mortgages: where the maths matters
Mortgages are different. Here, Lewis says the decision comes down to a numbers game: “If the mortgage rate is higher than the after-tax rate you can earn on savings… you are generally better to overpay the mortgage.”
But he’s quick to emphasise how important how you overpay is: “Make sure the payments go towards reducing your capital… so you reduce the amount of time you have left.”
Otherwise: “If they just reduce your monthly payments, you don’t make an interest saving.”
When saving might beat overpaying
If savings rates are stronger, the balance can tip the other way: “If the savings rate is higher than the mortgage rate, then you are probably better off to save.
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“If it’s very close between the two, generally, overpaying your mortgage will win.”
Why? Because of the quirks of how mortgage interest compounds over time.
The LTV factor most people miss
Overpaying isn’t just about interest – it can unlock better deals later: “If you reduce your mortgage debt, you reduce your loan-to-value… which could mean a cheaper mortgage when you remortgage.”
But he’s clear it won’t apply to everyone: “The gain on loan-to-value is really for people borrowing over 60% of their home’s value.”
Two non-negotiables before you overpay
Lewis stresses that overpaying should never come at the expense of financial safety.
1. Keep cash accessible
“I would always have an emergency fund in liquid cash,” he says.
Because lenders won’t be sympathetic if things go wrong: “They’re not going to say, ‘Oh, you’ve overpaid, don’t worry about paying us now.’”
2. Know your mortgage terms
“You need to check that there aren’t any overpayment penalties.”
Most lenders allow some flexibility: “On most mortgages, you can pay off up to 10% of your outstanding balance each year without penalties.”
But don’t assume – always verify.
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So what’s the right move?
In the end, Lewis brings it back to first principles: “It’s really just a piece of financial maths.”
But it’s not purely numerical. Tax on savings, access to cash, and even future mortgage deals all play a role.
His final takeaway? “It’s a fine balance.”
