Pension vs Mortgage Overpayment Calculator
Should extra cash go to pension or mortgage?
Compare pension contributions vs mortgage overpayments to estimate long-term value gained or interest saved for the same monthly amount.
What this tool does
This calculator models what happens to your finances if you allocate extra monthly cash toward pension contributions versus mortgage overpayments over a chosen time period. It estimates the future value you'd accumulate through pension growth and compares it against the interest you'd save by reducing your mortgage balance faster. The result shows the numerical difference between these two paths, helping you see which direction produces a larger end value. The pension return rate and mortgage rate are the primary drivers of the outcome. For example, someone with surplus income might use this to understand the trade-off between building retirement savings and paying down housing debt sooner. Note that the calculation excludes tax relief benefits on pension contributions and doesn't account for inflation, investment volatility, or changes in personal circumstances. Results are illustrative and based on the rates you enter.
Enter Values
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Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Spare cash faces a binary: pour it into the pension, or overpay the mortgage. Pension wins when net return exceeds mortgage rate, and tax relief on contributions supercharges that. Mortgage overpayment wins when the mortgage rate beats expected pension net return or when you value certain debt reduction over uncertain market returns. 200/month for 25 years at 7% pension return ends at 162,000; applied to a 5% mortgage it saves 105,000 in interest — pension wins in this case.
A worked example
Try the defaults: monthly extra cash of 200, horizon of 25, pension net return of 7%, mortgage rate of 5%. The tool returns 42,912.40. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.
What moves the number most
The result responds to Monthly Extra Cash, Horizon, Pension Net Return, and Mortgage Rate. Two inputs usually tip the answer one way or the other. Identify which ones matter most by flipping each value past a round threshold and watching whether the option with the lower calculated total changes.
The formula behind this
Future value of monthly annuity for pension side. Future value at mortgage rate for overpayment side (equivalent to interest saved compounding at mortgage rate). Ignores tax relief on pension — which would increase pension advantage. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.
Turning the result into a plan
A projection is just a starting point. The real work is setting the monthly amount aside automatically so the saving happens before you can spend it. Most people who hit savings goals set up a standing order on payday; most who miss them rely on willpower at month-end.
What this doesn't capture
The calculation assumes a steady savings rate and a stable interest rate. Real saving journeys include emergencies, windfalls, and rate changes — especially in easy-access products. The figure is a direction of travel, not a guarantee.
Allocating £200 over 25 years at 7 pension returns versus 5 mortgage rate suggests 42,912.40.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
Future value of monthly annuity for pension side. Future value at mortgage rate for overpayment side (equivalent to interest saved compounding at mortgage rate). Ignores tax relief on pension — which would increase pension advantage.
References
Frequently Asked Questions
Doesn't tax relief change this?
What about pension access age?
Certain vs uncertain?
Employer pension match?
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