Paying Off Your Mortgage Early vs. Investing

Mortgage and Investing

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Congratulations, firstly, on being an Australian homeowner and having surplus money! It’s no secret that managing your finances in today’s economy can be challenging.

If you recently found extra income, now is the perfect time to weigh your options. Should you use this surplus to accelerate your mortgage repayments or invest it to secure your retirement nest egg?

The current high inflation rate means you have to earn a higher return on your investment to break even. However, it also means the property’s dollar value is lower.

What Do The Options Mean To You?

Mortgage payments comprise two components: interest on the loan and a principal amount that pays down the total outstanding balance. The higher the interest rate, the more considerable the amount remaining on the loan in the last ten years.

Your goals will impact the path you take. So, be very clear with what you are working to achieve.

Of course, you should also think about your lifestyle. Do you want to build your investment portfolio for retirement income or have enough equity to buy a new car?

It’s a critical decision, and in this blog, we’ll explore the factors uniquely relevant to our Australian financial landscape.

Find the option that provides peace of mind, whether having a secure roof or a nest egg at the end of the road.

What is your peace of mind worth?


Option 1: The Advantages of Paying Your Mortgage Early

Reducing Interest Costs:

By directing your surplus income towards your mortgage, you can significantly reduce the total interest paid over the life of the loan. This means more money saved in the long run, as high inflation can erode your purchasing power. This approach is a secure and steady path, but it can often take 10-20 years to own your home thoroughly.

Increased Equity:

Faster mortgage repayments mean a quicker increase in your home’s equity. This offers more financial security and flexibility, especially in turbulent economic times. Paying off your mortgage early means earning passive income without mortgage-related expenses. Selling a house you own would also mean the lump sum could be utilised in other ways.

Permanent Roof Over Your Head:

In uncertain times, knowing that you have security in your living arrangements can be a valuable benefit. Aiming to own your home ensures that you secure your family’s shelter and can redirect funds in the future.

Reduced Tax Deductions:

Unfortunately, you can’t claim investing tax benefits on the mortgage on your home, as it’s viewed as your prominent place of residence.

Option 2: Investing for the Future

Capitalising on Investment Opportunities:

Australians can access various investment avenues, such as stocks, property, and superannuation funds. In a high-inflation environment, suitable investments can potentially outpace the erosion of the dollar’s value.


Spreading your investments across different asset classes can mitigate risks and provide higher returns, helping to hedge against inflation. Real estate investments can come with fees that add to the expense of the asset. Ensure you evaluate the total long-term impact. ROI can often occur within 3-10 years and will provide a different level of security than homeownership.

Retirement Planning:

Investing wisely now can secure a comfortable retirement. It’s essential to consider the long-term growth potential of your investments concerning your retirement goals. Once you stop working, you must lock in a source of income. A rule of thumb is to save money while paying off debt, but the bottom line is everyone needs a regular income to live.

Higher Tax Bracket:

If your investment income pushes you over the $120,000 tax bracket threshold, your payment will be taxed at a higher rate. Paying down your mortgage might be a more appropriate option in this case.

Option 3: Striking a Balance

While both approaches have clear advantages, the key is to find the right balance that suits your financial goals and risk tolerance.

1. Splitting Your Surplus:

Consider dividing your extra income between mortgage repayment and investment. This approach can benefit both strategies to leverage your capital for growth.

2. Consult with a Financial Advisor:

Seek advice from a financial professional who understands the Australian market and can help you tailor a strategy that aligns with your specific financial situation.

3. Regularly Review Your Strategy:

Given the volatility of the economic landscape, it’s essential to regularly review and adjust your approach to adapt to changing conditions. Align your long-term objectives while seizing opportunities for quicker ROI in the current market conditions.

Managing Money Wisely For Both Long And Short-term

Australian homeowners are uniquely positioned to use their surplus income to pay their mortgage faster or invest for retirement.

Both options have their merits, and striking the right balance is the key to securing your financial future.

Ultimately, making informed decisions that align with your financial goals and circumstances is essential.

Consulting with a financial advisor and staying flexible in your approach will be your best ally on the path to financial security.

Chat with one of our expert financial advisors to curate a plan tailored to your circumstances.

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