Overpaying your mortgage?

A loan overpayment is an extra, voluntary payment that reduces your outstanding debt. Depending on the loan terms, borrowers can make one-time or regular overpayments (e.g., monthly). In most cases, overpayments are free of extra charges.

The overpaid amount reduces the remaining principal. Overpayments can shorten the loan term and/or lower future monthly payments. By repaying the principal faster, overpayments lead to savings on the interest paid to the bank.

The benefit of repaying your loan faster with overpayments is the savings on interest. Overpaying a loan is then a form of investment that yields returns in the form of reduced interest paid to the bank. Alternatively to that, profit can be generated by investing in popular financial instruments, such as:

• bank deposit - invest a fixed amount (e.g., 1000 PLN) for a set period (e.g., 12 months) with a financial institution (e.g., a bank). At the end of the term, the bank returns the principal plus interest (e.g., 5% annually).
  
  capital security

  steady returns

  no or very low risk of capital loss
  low return rate

  no access to capital durin the term
• savings account - deposit a set amount (e.g., 1000 PLN) into a savings account with a specific interest rate (e.g., 2% annually). You can deposit and withdraw at any time, and the bank accrues interest on the balance.
  
  safe, profitable, low-risk like a deposit

  quick access to capital
  lower return rate, often less than deposits
• assets: stocks, gold, real estate, cryptocurrencies, etc. - buy assets that have the potential to grow in value over time. Investing in assets involves risk but can lead to higher returns compared to conservative financial instruments.
  
  potentially high returns

  "exit" to capital availability
  risks - price fluctuations

Which is better – overpaying your loan or investing potential overpayments? The comparison between both strategies comes down to evaluating which one will bring greater long-term benefits. An overpayer repays the loan faster than an investor – if time is the priority, overpayment is the better choice. However, if maximizing profit is the goal, the better strategy is the one that ultimately yields higher returns. The overpayer and investor will face different loan repayment costs. The investor’s capital will work longer, but the overpayer will invest more, as they have more available capital than the investor. The better strategy is the one that results in a larger final amount. The showloan.info calculator allows you to configure loan parameters, presenting the details of both strategies for an accurate comparison.