Overpaying your mortgage produces a guaranteed return exactly equal to your mortgage rate. At 4.5% that's 4.5%, without risk and without fluctuation.
That makes the comparison with investing simpler than it looks. If your mortgage rate exceeds your expected real return, repaying wins. Below it, investing wins on paper.
But there's a third option almost nobody calculates, and at best it yields eighteen percent. That's further down.
The basic comparison
| Your mortgage rate | Guaranteed return | Against 4% investing |
|---|---|---|
| 2% | 2% | Investing wins |
| 3% | 3% | Investing wins |
| 4% | 4% | Roughly equal |
| 5% | 5% | Repaying wins |
| 6% | 6% | Repaying wins |
Two things this table doesn't show.
Repaying is certain, investing isn't. Four percent is a historical average with interim falls of tens of percent. Four percent guaranteed is worth more than four percent expected, and how much more is a personal judgement.
Interest relief lowers your effective rate. If interest on your home loan is deductible, your net rate is below the figure on your quote, shifting the comparison towards investing. That's tax territory and the treatment changes; look up what currently applies to you.
What overpaying delivers
On a €300,000 mortgage at 4.5% over thirty years, with a €1,520 monthly payment:
| Extra repaid | New payment | Difference | Interest saved |
|---|---|---|---|
| €5,000 | €1,495 | −€25 | €9,120 |
| €10,000 | €1,469 | −€51 | €18,241 |
| €25,000 | €1,393 | −€127 | €45,602 |
| €50,000 | €1,267 | −€253 | €91,203 |
Repaying fifty thousand saves over ninety thousand of interest across the term. That sounds spectacular and it's simply 4.5% compounded over thirty years.
The choice you have and nobody asks about
When you overpay, you can usually choose what happens: your payment falls, or your term shortens. Most lenders default to the first, and that's usually the worse choice.
The same amounts, but keeping your payment at €1,520:
| Extra repaid | Finished after | Interest saved |
|---|---|---|
| €10,000 | 28.0 years | €26,828 |
| €25,000 | 25.3 years | €61,476 |
| €50,000 | 21.4 years | €107,731 |
Compare the two tables. At €50,000 you save €91,203 by lowering your payment and €107,731 by shortening your term. Over sixteen thousand euros of difference, for exactly the same repayment.
The difference is that in the second variant you keep paying what you were already paying, and every euro of it goes straight to the debt.
So ask explicitly for term reduction. Do nothing and you get the other one.
The targeted repayment: up to eighteen percent
Here's the find, and it follows from something in the article on loan to value.
Your lender sorts your mortgage into risk bands based on your LTV, meaning your outstanding balance divided by your property value. Drop below a threshold and your interest surcharge falls. And that reduction applies to your entire outstanding balance, not just the amount you repaid.
Three examples of someone sitting just above a threshold:
| Situation | Needed to drop below | At 0.1% discount | At 0.2% | At 0.3% |
|---|---|---|---|---|
| LTV 82%, threshold 80% | €8,000 | 4.0% | 8.0% | 12.0% |
| LTV 68.5%, threshold 67% | €6,000 | 4.5% | 8.9% | 13.4% |
| LTV 61%, threshold 60% | €4,500 | 6.0% | 12.0% | 18.0% |
Set that beside untargeted repayment. The same four thousand euros:
| Method | Annual saving | Return |
|---|---|---|
| Untargeted repayment at 4.5% | €180 | 4.5% |
| Targeted to drop below 67% at 0.2% | €540 | 13.5% |
Three times as much, for the same money. The reason is that a small amount triggers a discount on a large amount.
This only works if you sit just above a threshold. Well above it and it's ordinary arithmetic. And with a government-guaranteed mortgage it doesn't apply at all, since one rate applies regardless of LTV.
The penalty-free allowance
You can't repay unlimited amounts without cost. Most lenders let you repay a percentage of the original principal each year without penalty:
| Percentage | On a €300,000 principal |
|---|---|
| 10% | €30,000 a year |
| 15% | €45,000 a year |
| 20% | €60,000 a year |
Three things that often go wrong.
It applies per loan part. With three loan parts you have three separate allowances, each calculated on that part's original principal.
It doesn't accumulate. Unused allowance from last year lapses. Repaying in December and again in January uses two annual allowances.
Above the allowance, penalty interest applies, and it can be substantial. It's calculated on the interest loss your lender suffers across your remaining fixed-rate period. With a low fixed rate and higher market rates there's sometimes no penalty; the other way round it can be thousands.
Always request a calculation first. It's free and it prevents surprises.
When repaying wins
Four situations.
Your rate exceeds your expected return. At 5% or more the comparison isn't complicated.
You sit just above an LTV threshold. The targeted repayment above is then almost always the best use of that money.
You have more savings than your buffer requires. Money losing value in real terms in a savings account does better against your mortgage rate. How large your buffer should be is in the article on savings.
You want lower fixed costs at your stop date. Anyone wanting to retire early lowers their spending with a repaid mortgage, and that lowers their target by roughly twenty-five times the annual saving.
When investing wins
Four situations.
Your rate is fixed low. At 2% against an expected 4% real return, investing is better on paper, and that gap compounds across the term.
You have no buffer yet. Money repaid isn't easily retrieved. Buffer first.
You're far from retirement. The longer horizon favours investing, because you're more likely to sit out a poor stretch.
You still have the relief. It lowers your effective rate and shifts the comparison.
The point that skews the comparison
One thing missing from almost every discussion of this subject.
Repaying is irreversible in practice. The money sits in your house and only comes out through sale or a new loan, and the latter costs interest and arrangement fees. What that costs is in the article on releasing home equity.
Investing isn't. You can sell, even if the timing is expensive.
That difference in liquidity isn't a return and it does count. For anyone with uncertain income or without a generous buffer, it weighs heavily.
How Gylder fits in
Overpaying changes three things at once: your outstanding balance, your payment and your LTV. The third is precisely what people don't track, and it's where most of the return sits.
Gylder models your mortgage as it's actually built: multiple loan parts, each with its own repayment type, rate, term and penalty-free allowance. That shows you per part how much you can still repay this year without penalty, rather than having to look it up in your mortgage deed.
Your property value moves between your own valuations using the official house-price index for your region, so your LTV stays right in the years you enter nothing. And there's a signal when you approach a threshold.
That's the moment the targeted repayment in this article makes money, and precisely the moment almost nobody thinks of it.
What this doesn't tell you
The rates are worked examples. What you pay and what discount your lender applies between bands is in your terms.
Interest relief isn't included. It lowers your effective rate and shifts the comparison towards investing. Tax territory, and the rules change.
Penalty interest can't be generalised. It depends on your remaining fixed-rate period and the gap with current market rates. Request a calculation.
With a government-guaranteed mortgage the LTV effect doesn't apply. One rate throughout.
This isn't advice. Whether repaying suits you depends on your rate, your buffer, your horizon and your risk tolerance.
Frequently asked questions
Is overpaying my mortgage sensible? At a rate above your expected return, yes; at a low rate usually not. The exception is targeted repayment to drop below an LTV threshold, which can yield up to eighteen percent.
How much can I repay without penalty? Usually ten percent of the original principal per year, per loan part. Unused allowance lapses at the end of the calendar year.
Should I lower my payment or shorten my term? Shortening the term delivers more. On a €50,000 repayment that's €107,731 of interest saved against €91,203, so over sixteen thousand more. Ask explicitly, because the default is the other one.
Repay or invest? Compare your mortgage rate with your expected real return. Above 5% repaying usually wins, below 3% investing. Between them your risk tolerance decides.
What does repaying €10,000 deliver? At 4.5% over thirty years, €18,241 of interest saved if you lower your payment, or €26,828 if you shorten your term.