Finance, Investing, Life

Should you pay off your mortgage or invest?

It won’t come as a surprise that rising interest rates have put immense pressure on households around the country. According to research by Roy Morgan, 30.3% of Australian mortgage holders are now under ‘mortgage stress’.

Mortgage interest rates are now around 7%, with most major banks predicting rates have peaked and are forecasting a fall from mid to late 2025. . Regardless of what the future holds, the reality is that most Australian mortgage holders have endured numerous hikes and are now financially stretched. 

If that’s the case, perhaps you’re thinking of how best to manage your finances so you’re better set up for the future. If you have the means to do so, should you pay your mortgage down further and be free from the shackles of your lender or bank sooner? Or should you invest in other assets and potentially get returns that provide a comfortable financial cushion? 

In this article, we’ll cover the basics of shares vs. mortgages, explore the pros and cons of each and give you all the details you need to make the best decision for you in the current climate.

Understanding shares and mortgages

Paying down your mortgage and investing will both result in increasing your savings. The main difference is that paying down your mortgage will reduce your debt (borrowing), whereas investing will diversify your overall wealth and income.

If you’re lucky and current higher interest rates aren’t putting you under pressure, you might have extra money.  Rather than paying off the mortgage quickly as possible, you might want to diversify your wealth across different investments.

What are shares as investments?

Shares, also known as stocks or equities, represent ownership in a company. Investors buy shares with the expectation of earning returns through capital appreciation and dividends. However, the stock market is not without risks, and understanding these risks is essential before diving into the stock market.

Mortgage payments

On the other hand, paying down a mortgage involves reducing the outstanding balance on a home loan. This contributes to building home equity and eventually owning the property outright. Mortgage payments are considered a stable and secure method of wealth-building over time.

Defining your personal financial goals

Before deciding whether to invest in shares or pay down a mortgage, it’s essential to define your financial goals. Whether your priority is wealth accumulation, homeownership or a combination of both, aligning your decisions with your objectives is key.

There are other factors to consider, such as your lifestyle, risk capacity and, of course, your marginal tax rate. For example, suppose you are older and still owe a significant debt on your mortgage. In that case, the appeal of owning your home outright as soon as possible may be more important for your retirement than earning a better return by investing. It’s really a personal decision. This video covers some of the key considerations.

What to consider when investing in shares

Got some savings to invest in shares? Let’s look at the details.

Potential returns from shares

Shares have the potential for high returns, especially over the long-term. Historical data shows that, despite fluctuations, the stock market tends to appreciate over time. Assessing your risk tolerance and investment horizon is essential when considering shares as part of your financial strategy.

Diversification and risk management in share investments

Diversifying your investment portfolio is a strategy we recommend to mitigate risks associated with shares. Spreading investments across different sectors and industries can help balance potential losses in one area with gains in another. Understanding risk management is fundamental for successful share investing.

Market trends and analysis

Staying informed about market trends and conducting thorough analysis is crucial for making informed investment decisions. Stockspot builds and manages your sharemarket portfolio for you, so you can get on with enjoying life and not having to worry about picking stocks.

What to consider when paying down a mortgage

Reducing debt and increasing equity

Paying down a mortgage is a methodical approach to building wealth through homeownership. Each payment contributes to reducing debt and increasing home equity. This can provide a sense of security and stability over the long term.

Long-term benefits of mortgage payment

While the returns may not be as high as those from successful share investments, paying down a mortgage offers long-term benefits. Owning a home outright can lead to financial freedom, reduced monthly expenses and a valuable asset that can be leveraged in the future.

Interest rates and mortgage strategies

Understanding interest rates and adopting effective mortgage payment strategies is essential. Refinancing, making additional payments or leveraging low-interest rates are tactics that can optimise the mortgage payment process. 
For example, if your mortgage comes with an offset account, one option is to keep all your income there. This should pay you around the same rate as your mortgage, but if you’ve already made good headway paying down your loan, you may still get better returns from investing.

Pros and cons: Investing in shares vs. paying down your mortgage faster

Investing in Shares


  • Potential for High Returns: Shares have the potential for substantial returns, especially over the long term.
  • Diversification Opportunities: Investing in a variety of stocks allows for portfolio diversification, reducing the impact of poor-performing stocks on overall returns.
  • Liquidity: Shares are generally more liquid than real estate, providing the flexibility to buy and sell assets quickly.
  • Dividend Income: Some shares pay dividends, providing a regular income stream for investors.


  • Market Volatility: The stock market can be unpredictable, leading to potential losses during periods of volatility.
  • Risk of Loss: Investments in shares are subject to market fluctuations, and there’s a risk of losing the invested capital.
  • Requires Active Management: Successful share investing often requires regular monitoring and adjustments to the portfolio based on market conditions, however using a robo-advisor like Stockspot takes care of this for you.

Paying down your mortgage faster


  • Stable and Secure: Mortgage payments offer a stable and secure method of building wealth over time.
  • Reduced Debt: Paying down the mortgage contributes to reducing overall debt, leading to increased financial stability.
  • Home Equity: Each payment increases home equity, providing a valuable asset for the future.
  • Lower Risk: Compared to the stock market, mortgage payments involve lower financial risk.


  • Lower Returns: The returns from paying down a mortgage are generally lower compared to potential returns from successful share investments.
  • Opportunity Cost: Money used for mortgage payments could potentially be invested elsewhere for higher returns.
  • Long-Term Commitment: Committing to mortgage payments is a long-term financial obligation that may limit short-term financial flexibility.
  • Interest Costs: While paying down the mortgage, the current high-interest costs will still accumulate, impacting the overall cost of homeownership.

I want to invest. How much should my investments earn?

If you’re leaning towards investing, you want to make sure it’s worth it.

Let’s start with an example of a $100,000 mortgage. If interest rates are 7%, then you’d pay $7,000 per year in interest.

This means you’d need to find an investment that earns a higher return than 7% per year to be better off investing than paying down your mortgage (or adding to an offset account).

Should I buy a term deposit instead of paying down my mortgage?

The short answer is no. It may seem like the safe option to put the extra money you have into savings or a term deposit, but you’d be worse off compared to paying down your mortgage (or adding to your mortgage offset account).

Term deposits currently pay less than 5%, and this is less than a typical mortgage rate of 7%, so you’d be locking in a loss of 2% per year. Plus, the interest earned on a term deposit will be taxable income, whereas there is no tax deduction for interest on owner-occupied home loans.

If you want to invest instead of paying down your mortgage (or adding to the offset account), you need to consider investments that can achieve at least the same return as your mortgage interest rate.Investments like Australian shares, international shares and high grade bonds have all exceeded the average mortgage interest rate over the long run. Compare their returns below against the current mortgage interest rate (on average between 5.8% and 7.26% p.a.).

1 year5 years (p.a.)10 years (p.a.)
Australian shares10.49%8.61%7.87%
International shares36.99%16.97%14.27%
High grade bonds3.42%0.15%2.32%
Data as of 29 February 2024

Note: after tax, the return on these investments will vary based on the level of franking credits and concessional capital gains as well as your tax position.

Should I invest in shares instead of paying down my mortgage?

You should only consider investing if you have the disposable income available and you can do it for the long-term. The day-to-day share market movements become much less relevant over time, so the decision to invest should be based on a long-term strategy. 

As we always say at Stockspot, the longer you invest, the better your chance of success. Also, because some of these asset classes do well at the same time that others do poorly, it’s a safer strategy to invest in a balanced portfolio with a mix of different assets.A Stockspot diversified investment portfolio of low-cost ETFs has earned 7-10% over the long run and is much less risky than just owning Australian shares.

Stockspot portfolio returns*5 years (p.a.)Total 5 year returns
Amethyst (conservative)4.6%25.5%
Sapphire (moderately conservative)5.7%32.1%
Turquoise (balanced)6.4%36.5%
Emerald (growth)7.4%42.7%
Topaz (high growth)8.1%47.8%

*Returns are after-fees as at 29 February 2024. Past performance of financial products is no guarantee of future performance.

It’s also important to keep your costs low when you invest as everything you pay in fees eats into your returns. This is particularly pertinent if you also have a mortgage.

Pay off your mortgage or invest? Here’s a checklist

FactorPay down mortgage / add to offset accountInvest extra savings
ReturnsIt makes more sense to consider investing when mortgage interest rates are lower. Currently owner-occupied mortgage rates are around 7% p.a.You need to compare the expected return from investments to the mortgage interest rate. Over the long run a diversified Stockspot portfolio has earned 7-10% p.a.
TaxIs your interest tax deductible? This is based on whether it’s your primary residence or an investment property.The after-tax return from investments will vary based on the level of franking credits and concessional capital gains as well as your tax position.
Time horizonIt’s a safer option to pay down the mortgage if the period remaining on it is less than 3 years.The longer you have to pay your mortgage, the more attractive investing becomes. You have a better chance of earning more than the mortgage interest rate from your investments.
Safety bufferYou need to build a significant safety buffer and be ahead on mortgage repayments before considering investing.Make sure your investments can be easily sold should your circumstances suddenly require you to pay down more of the mortgage.
Income certaintyIf your income is less certain it makes more sense to pay down your mortgage.If your work income is stable, investing is more attractive. There’s less risk you’ll need to sell down your portfolio early to meet mortgage repayments.

This article was originally published in October 2019 and updated in February 2021 with current information.

Making the right choice for you

In the current financial landscape, there is no one-size-fits-all solution. The right choice hinges on personal circumstances, goals and risk tolerance. The choice between investing in shares and paying down a mortgage faster is not a binary decision but a nuanced exploration of financial possibilities. 

It’s also crucial to recognise that financial decisions are not static. They evolve with changing circumstances. The optimal choice today might need adjustment in the future. Regular reassessment and professional advice ensure that your financial strategy remains robust and aligned with your aspirations.

Whether you’re planning to invest in property, save for a house deposit, or you just want an alternative way to grow your wealth – we can help.
  • Chris Brycki

    Founder and CEO

    Chris has over 25 years of investment experience and spent most of his early career as a Portfolio Manager at UBS. Chris has been a member of the ASIC Digital Advisory Committee and volunteers as a member of the Investment Committee for the NSW Cancer Council. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.

Founder and CEO

Chris has over 25 years of investment experience and spent most of his early career as a Portfolio Manager at UBS. Chris has been a member of the ASIC Digital Advisory Committee and volunteers as a member of the Investment Committee for the NSW Cancer Council. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.

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