Paying down a home loan gives a certain, tax-free return equal to your mortgage rate. Investing gives a higher expected but uncertain return, taxed partly each year and partly on sale. On typical assumptions at 2026–27 tax rates, investing shows the higher calculated gain over 25 years unless your mortgage rate averages above roughly 8%. The numbers are only half the decision; the other half is risk, access and what you need the money for.
It is one of the most common money questions in Australia: you have spare cash each month or a lump sum — do you throw it at the home loan, or invest it? Opinions are strong on both sides. This page sets them aside and runs the arithmetic on a like-for-like, after-tax basis, then covers the things the arithmetic cannot capture.
Every extra dollar you put against a home loan used for private purposes saves interest at the loan rate. That saving is not income, so it is not taxed. Investment returns are. To compare them fairly, convert the mortgage rate into the taxable return it is equivalent to: mortgage rate ÷ (1 − marginal tax rate).
| Marginal tax rate (2026–27) | Taxable income | A 6.5% mortgage is equivalent to |
|---|---|---|
| 15% | $18,201 – $45,000 | 7.65% p.a. taxable |
| 30% | $45,001 – $135,000 | 9.29% p.a. taxable |
| 37% | $135,001 – $190,000 | 10.32% p.a. taxable |
| 45% | Over $190,000 | 11.82% p.a. taxable |
Resident rates for 2026–27, excluding the 2% Medicare levy.
A guaranteed 9.29% is a high bar for any investment. But this gross-up overstates the case against shares slightly, because share price growth is not taxed each year — only when you sell, and currently with a 50% discount. The full comparison below accounts for that.
$100,000 either paid off the mortgage (or held in an offset account, which saves the same interest) or invested in an ETF. Assumptions: 6.5% mortgage rate, 8% ETF capital growth plus 3.8% dividends, 30% marginal tax rate, current 50% CGT discount.
| Holding period | Pay off mortgage (interest saved) | Invest (ETF gain after tax) |
|---|---|---|
| 5 years | $37,009 | $53,920 |
| 10 years | $87,714 | $128,529 |
| 15 years | $157,184 | $232,893 |
| 20 years | $252,365 | $380,235 |
| 25 years | $382,770 | $589,887 |
Calculated gains under these specific assumptions only. Not a recommendation.
On these assumptions investing leads at every horizon. But notice what the comparison is: a certain $382,770 against a projected $589,887 that depends on 25 years of 8% growth arriving on average. Using the calculator's optional risk-adjusted view, which applies a simplified haircut to riskier options, the mortgage comes out ahead at 25 years ($382,770 against $353,932). Which view matters more is a personal judgement.
Varying only the mortgage rate, over 25 years:
| Mortgage rate | Pay off mortgage | Invest | Higher figure |
|---|---|---|---|
| 5.0% | $238,635 | $589,887 | Invest |
| 6.5% | $382,770 | $589,887 | Invest |
| 8.0% | $584,848 | $589,887 | Invest (under 1%) |
| 9.0% | $762,308 | $589,887 | Pay off mortgage |
The ranking flips at a mortgage rate of about 8.03% over 25 years, and higher over shorter periods (8.62% over 10 years, 9.01% over 5), because deferred tax on share growth needs time to compound. Under the legislated post-1 July 2027 CGT rules, applied to the whole gain as a simplified scenario, the 25-year break-even falls to about 7.67%.
Your tax rate matters less than most people expect: at 25 years, investing still shows the higher calculated gain at every marginal rate from 15% to 45% on these assumptions. The share-specific version of this comparison is in offset account vs ETF.
Run it with your own mortgage rate → Core calculator free · No sign-up · Works on iPad, phone and desktopIf you lean towards the mortgage, there are two ways to do it, and they save the same interest:
The difference matters most if the home might become an investment property later. Interest deductibility depends on the loan balance and how borrowed funds are used. Money paid off the loan and later redrawn is generally treated as new borrowing for whatever it is used for, whereas money sitting in an offset leaves the original loan balance intact. Anyone in that position should check the tax treatment with a registered tax agent before choosing.
Access to cash. Money in the mortgage is hard to get back once repaid. An emergency fund held separately, or in an offset, protects you from having to sell investments at a bad time.
Concentration. For many households the home is already the largest asset. Investing adds diversification away from one property in one city; paying it down concentrates further.
Behaviour. The investment figures assume you hold through every downturn. Selling in a crash breaks the projection. The mortgage has no equivalent failure mode.
Time to retirement. Entering retirement debt-free removes a fixed cost. Some people value that certainty more than a higher projected balance.
Not modelled: franking credits (favour shares), brokerage and fees (reduce returns), changes in mortgage rates over time, and superannuation, which is taxed differently again and is a separate question.
Rather than a single answer, these are the situations in which each tends to look stronger on the numbers and the risks:
Many households do some of each. The calculator lets you compare both paths on your own rate, tax bracket and time frame, and with Advanced you can model regular monthly or yearly contributions rather than a single lump sum.
Open the after-tax investment calculator for Australia → Core calculator free · Advanced tools availableIt depends mainly on your mortgage rate. On the default assumptions above, investing shows the higher calculated gain over 25 years unless the mortgage rate averages above about 8%. Paying down the mortgage gives a certain, tax-free return; investing gives a higher expected but uncertain one.
Yes, in the sense that each dollar repaid on a home loan used for private purposes saves interest at the loan rate, with no tax on the saving. At 6.5% and a 30% marginal rate, that is equivalent to a taxable return of about 9.29% a year.
Both save interest at the same rate. An offset generally keeps the money more accessible and keeps the loan balance intact, which can matter if the property may later become an investment. Redraw access depends on your lender's terms.
Yes. The legislated replacement of the 50% discount with indexation and a 30% minimum tax, for gains accruing from 1 July 2027, lowers the 25-year break-even mortgage rate from about 8.03% to about 7.67% in a simplified scenario, making paying down the mortgage relatively more competitive.
Many households split surplus cash between the two. Splitting reduces the risk of being entirely wrong in one direction. Whether a split suits your circumstances is a question for a licensed adviser.