The usual rule is to compare your mortgage rate with what the savings account pays. The better comparison uses after-tax numbers.
Savings interest is taxed
US savings interest is taxed as ordinary income. $10,000 at 4.5% earns $450 a year. In a 22% federal bracket, that is about $351 after federal tax (more if your state taxes it too). The after-tax rate is about 3.5%.
Mortgage overpayments save the full rate
Overpaying $10,000 on a 6.5% mortgage saves about $650 of interest in the first year, and that saving is not taxed. The only exception: if you itemize and deduct mortgage interest, the real saving is somewhat lower. Most households take the standard deduction.
So, by rate
- Mortgage at 3%: $300 saved vs about $351 after tax in savings. Keeping the cash wins slightly, and you keep the flexibility.
- Mortgage at 6.5%: $650 vs about $351. Overpaying clearly wins on rate.
Rate isn't the only question
- Money paid into a mortgage is hard to get back out. Keep your emergency fund first.
- High-interest card debt beats both.
- An employer retirement match usually beats both too.
- Savings rates change; a fixed mortgage rate does not.
Free tools
- Pay off debt or save calculator: https://smartbudgetsheets.surge.sh/calculators/pay-off-debt-or-save-calculator/?utm_source=mataroa
- High-yield savings calculator: https://smartbudgetsheets.surge.sh/calculators/high-yield-savings-calculator/?utm_source=mataroa
- Mortgage payoff calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-payoff-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.