It’s a question I get asked a lot.

The honest answer is I don’t know. And now you’re thinking I’m useless as an expert in financial matters. But the reason I have no idea is because it depends on personal circumstances and there are a lot of variables.

It’s like me asking you to diagnose an appendix by being told one has a stomach ache. Your chances of a success diagnosis is, to be honest, a bit ambitious.

This is what I do know.

Overpaying can save you thousands of dollars in interest and the satisfaction that your debt is being paid off earlier, but it’s not right for everyone.

Here’s why.

Being a numbers man, lets put some figures in the mix.

If you had a 25-year $400,000 loan at a rate of 2 per cent, your monthly payments would be $1,695. Over the whole term, you would pay $108,626 in interest. But if you overpaid $100 a month, you would repay your debt in 23 years and four months, saving $8,228 in interest payments.

If you overpaid by $300 a month, you would repay your debt in 20 years and six months, saving $21,401 in interest payments.

You will be better off making repayments than keeping money in a savings account if your mortgage rate is higher than that of your savings account. If you pay 2 per cent on your mortgage, you need at least 2 per cent interest on your savings to get the same return.

The problem is that if you are a higher rate taxpayer, who is taxed on their savings, the saving rate needs to be much higher than your mortgage rate to save the same amount.

And what are the chances that your savings rate is equal or more than your mortgage rate?

Not much. In fact, the chances of that happening are the same and trying to convert the Pope to Hinduism.

So, it can make sense to pay your mortgage off quicker.

But the same thought process should apply to the stock market. If you think market returns will be more than mortgage interest rates that investing may make more sense.

If you paid $100 a month into investments and made an average of 4 per cent a year, you would make $51,584 over 25 years — a lot more than the $8,228 you would save in interest payments if you repaid £100 a month on a $400,000 mortgage.

Based on the above investing is better. Sadly, however, it’s not that simple.

You see paying off your mortgage or putting your cash in a savings account gives you a guaranteed rate, whereas there are no guarantees in investing.

And this is the reason you need financial professionals to advise you to get the right result for you. And it is the same reason one has to go to the hospital to confirm if one ‘has an appendix.
Trying to navigate your own financial future is like trying to self-diagnose an appendix. It usually does not end well.