Generally speaking, overpaying your mortgage is always a good idea. When inflation is high, paying more towards your mortgage means the higher rate of interest is applied to a smaller debt, therefore making it more affordable overall.
However, if savings interest rates are also on the rise, this can create a logical argument for saving instead of overpaying.
When you should save
If you have a lower interest rate on your mortgage than on your savings account (for example, your mortgage is 3% and your savings is 6%), it makes financial sense to save rather than overpay your mortgage. This way, you’ll benefit from accrued interest while your savings rate is higher than your mortgage. You can always use that money (plus a little extra from interest) to arrange a one-off lump sum mortgage overpayment later.
When you should overpay
Now, if your mortgage interest rate is similar to (or more than) your savings interest rate, it’s recommended that you overpay your mortgage instead. This is because the interest you’ll earn from savings would be less than the interest you’re paying on your mortgage. So, in short, you’ll save more money long-term by overpaying than you would by saving.
