Pay off your mortgage early or invest?
It’s a question that keeps many Australian homeowners up at night. If you have a little extra savings up your sleeve – should you pay down your mortgage early or invest?
There’s little doubt that for many homeowners, reducing the burden of debt from a mortgage is incredibly tempting.
And it seems like a quick way to financial security.
Plus with historically low interest rates it can feel like the obvious choice… but it might not be the most strategic one in the long run.
Before you go making additional payments into your home loan… it could pay to weigh up your options by doing some simple number crunching.
And taking your personal considerations into account – you’ll feel more confident in your wealth building strategy – no matter what decision you make.
What matters most?
Before you dive deep into the number crunching and weighing up pros and cons, you should first ask yourself: which goal is more important?
Is it to be mortgage free?
Repaying your home loan and owning your property outright can give you peace of mind in knowing that you will have a roof over your head.
Eliminating the financial obligations of mortgage repayments can help improve your quality of life and your financial well-being.
Or are you looking to build your wealth and secure your financial future by diversifying your investments?
Concentrating your wealth into one asset can be a risky strategy, especially if it’s tied up in the residential property market.
Your wealth could become vulnerable in the event of a downturn in the market. Investing the additional funds could make a significant difference in your overall financial position… for the long term.
“Paying down your mortgage or investing isn’t an either–or decision — it’s about balance and long-term strategy.”
It pays to crunch the numbers
Regardless of your long-term financial goal, it is always worth taking a few minutes to run the numbers.
It can help paint a picture of where each path can take you and your family.
Let’s assume that you have an extra $500 a month to play with.
For this example we will use a 30 year, $500,000 mortgage at a 3.0% interest rate.
It’s important to keep in mind that current rates are actually lower, but we have used it for illustrative purposes.
And as rates decrease or increase over the 30 year period, these figures would change.
The Government’s Moneysmart online mortgage calculator indicates that the monthly repayments on this mortgage would be $2,108 per month.Monthly fees have not been included in this scenario as these can vary depending on the lender. After 30 years your mortgage would be finalised and you would have paid $258,887 in interest over that time.
With an additional $500 a month paid into the home loan, you would reduce the interest paid to only $185,320 and the term of the loan to 21 years and 11 months. That’s more than eight years sooner and $100,576 less interest.
But what if you were to invest that $500 a month instead? With an average investment return of 7.5% and the beauty of compounding interest, your money will work harder for you. And you’ll see a significant increase in your investment over the three decades.
The Government’s Moneysmart compound interest calculator indicates that your investment would be worth $673,723 at the same time that your mortgage would be finalised.
That leaves a dramatic $573,156 difference between the amount of interest you saved on your mortgage and the investment you have grown.
Think of it this way – as long as the average return of investment remains higher than your interest rate on your mortgage it could make more sense to grow your wealth using an investment strategy.
Anything else I should consider?
Whilst the calculations in the example give a positive story to investing…
it’s important you look at your personal considerations so you can make the best decision for you and your family. It’s clear that when it comes to finances, some people are more comfortable with taking risks than others.
Knowing which side of the coin you are on will help you make a confident decision.
And remember either way reducing your mortgage or investing will increase your assets.
The next thing to consider is your lifestyle factors. If you are in your thirties then you might make a different choice to someone closer to retirement.
And don’t forget that your marginal tax rate could influence your decision.
For those on a higher income bracket you might find your investment income is taxed at a higher rate. In this case paying off your mortgage might be the better way to go. A financial adviser can help you analyse your options and decide what’s best for you.
“The right choice depends on your goals, risk tolerance and cash flow, not just interest rates.”
Be better off
A financial adviser can help you assess whether you should refinance to get a better rate for your home loan.
Taking a few minutes out of your day to sit down and review your current home loan could save you in the long run.
Seeking professional services can help you determine whether paying off your mortgage or investing is best suited to your homeownership goals, lifestyle and risk tolerance.
The team at North Advisory is here to help you clarify how best to invest your money.
If you’d like to find out more about how we can assist, please contact us today.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
There’s No One-Size-Fits-All Answer
The right strategy depends on your personal financial situation, goals and comfort with risk.
Mortgage Reduction Offers Certainty
Paying down debt provides guaranteed savings and reduces financial pressure.
Investing Supports Long-Term Growth
Investing allows wealth to grow over time, particularly when started early and maintained consistently.
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Frequently Asked Questions
Is it better to pay off my mortgage or invest?
There’s no single right answer. The best option depends on factors such as your interest rate, investment returns, risk tolerance, tax position and long-term goals.
What are the benefits of paying down a mortgage first?
Reducing your mortgage lowers interest costs, improves cash flow and provides certainty and peace of mind through lower debt levels.
What are the benefits of investing instead of paying off my mortgage?
Investing may offer higher long-term returns through compounding, helping build wealth faster — though it involves greater risk than debt reduction.
Can I do both at the same time?
Yes. Many people adopt a blended approach, paying extra off their mortgage while also investing regularly to balance security and growth.
Should tax be considered when deciding?
Absolutely. Investment returns, tax deductions, and capital gains tax can all influence whether paying down debt or investing delivers a better after-tax outcome.
Should you pay off your mortgage faster or start investing?
It depends on your goals, cash flow, and risk tolerance — but for many people, the best approach is a balanced strategy that reduces debt while also building investments over time. A financial advisor can help you compare the numbers and choose a plan that supports long-term wealth without putting pressure on your lifestyle.
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