It's one of the most debated personal finance questions in Australia: should you throw every spare dollar at your mortgage, or invest it instead? The honest answer is: it depends — but most people get the calculation wrong because they ignore tax.
The Basic Maths First
If your mortgage rate is 6.2% and your investment returns 8%, investing appears to win by 1.8% per year. Simple, right?
Not quite. That 6.2% mortgage saving is guaranteed and tax-free. The 8% investment return is neither.
The After-Tax Investment Return
Let's say you're on a $120,000 salary — a common household income for Australian families with mortgages. Your marginal tax rate is 37% (plus 2% Medicare levy = 39%).
| Investment Type | Gross Return | After Tax (39% rate) | vs Mortgage at 6.2% |
|---|---|---|---|
| High-interest savings | 5.0% | 3.05% | ❌ Mortgage wins |
| Term deposit | 5.2% | 3.17% | ❌ Mortgage wins |
| ASX index fund (income) | 7.5% | 4.6% | ❌ Mortgage wins |
| ASX index fund (growth) | 9.0% | ~6.2% (with CGT discount) | ≈ Roughly equal |
| Investment property | 8–12% | Variable | ⚠️ Depends heavily |
💡 The key insight: Your mortgage offset account earns the equivalent of 6.2% completely tax-free. To beat that with investments, you need pre-tax returns well above 10% — which is not guaranteed from any asset class.
The Superannuation Exception
There is one area where investing almost always beats paying down the mortgage for Australians: superannuation.
Super is taxed at 15% on earnings inside the fund. On a $10,000 contribution, if the fund earns 8%, you keep $6,800 after tax — an effective after-tax return of 6.8%. That beats your 6.2% mortgage rate.
Even better, salary sacrifice contributions reduce your taxable income at your marginal rate. A $10,000 salary sacrifice saves you $3,900 in income tax (at 39%) while only "costing" $8,500 (15% contributions tax). That's an immediate 46% return on the tax saving alone.
Super strategy recommendation:
- Max out your concessional contributions cap ($30,000/year in 2024–25) first
- Use carry-forward unused cap amounts if available
- Then direct remaining surplus to your mortgage/offset
The Emotional and Risk Factor
The investment vs mortgage maths assumes you can stomach market volatility. In practice, many Australians cannot. Watching a $150,000 share portfolio drop 35% in a market correction — while still making mortgage repayments — is psychologically brutal.
A fully paid-off home is a risk-free, guaranteed return. No investment can match that certainty. For homeowners approaching retirement, the security of outright home ownership is often worth more than the theoretical returns of staying invested.
Our Recommended Framework
Rather than choosing one or the other, use this priority order:
- Employer super match — always capture this (it's free money)
- High-interest debt — credit cards, personal loans (pay these off first, always)
- Emergency fund in offset — 3–6 months expenses minimum
- Max salary sacrifice to super — up to the concessional cap
- Extra mortgage repayments / grow offset — guaranteed tax-free return
- Invest beyond super — only after the above are in order
The Australian Offset Advantage
One often-overlooked benefit of the offset-heavy strategy: the $148,000 sitting in your offset isn't locked away. Unlike paying off your mortgage (where you'd need to refinance to access equity), offset funds remain liquid.
This means you can keep the security of a fully funded emergency account, the tax-free benefit of reducing interest, and the flexibility to invest opportunistically when markets fall — all at the same time.
Bottom Line
For most Australians with mortgages around 6%+, the after-tax maths strongly favours paying down the mortgage (via the offset) over most traditional investments — except super. Build your offset, max your super, and invest in shares only once both are in order.
See your mortgage payoff scenario
Use the Offset Calculator →