Mortgage vs investing — where should your spare money go?
You have some spare cash each month. This free calculator compares the three things a homeowner can do with the same monthly amount — (1) extra mortgage repayments, (2) money in an offset account, or (3) investing it (for example in a diversified exchange traded fund, an ETF) — side by side, after tax. Every figure updates live. Prefer the long read? See the full guide: Pay off the mortgage or invest?
The straight answer
Paying the loan is a guaranteed after-tax return at your rate — offset is the same maths with the money still in reach. At the defaults, investing has to average about 6.4% a year just to match it, and only one of those numbers is promised.
After 10 years, the same $500 a month gets you…
1 · Extra repayments
$—
2 · Offset account
$—
3 · Invest it
$—
The three paths over time
- Extra repayments
- Offset account (same line — the dashes sit on top)
- Invested, after estimated CGT if sold that year
Estimate only — general information, not financial advice. The investment return is an assumption you control, not a prediction: paying down the loan is guaranteed, investment returns are not. Confirm tax treatment with the ATO or a registered tax agent.
What this tool compares
All three paths use the identical spare monthly amount, on top of your normal minimum repayment. The only question is where that money works hardest for you, after tax.
Pay the loan / offset
- Guaranteed saving at your loan rate — 5.5% at the default
- Interest you avoid is not income, so the saving is untaxed
- Offset stays withdrawable; extra repayments are locked in the loan
Invest it
- Compounds at the return you assume — a promise no market makes
- CGT on the gain at sale — 50% discount if held over 12 months
- Markets can return more, less, or lose money over any period
Path 1 — extra repayments, in full
Every extra dollar paid into the loan stops interest being charged on it at your loan rate. Because interest you avoid is not income, nothing is taxed: on an owner-occupier home loan, extra repayments behave like a savings account paying your loan rate, after tax and risk-free. At the default 5.5%, that is a guaranteed 5.5% — a return an investment can only promise, never guarantee.
Path 2 — offset account, in full
An offset account is a transaction account attached to your loan; the balance is subtracted from the loan before interest is calculated. Mathematically it is the same engine as extra repayments — $10,000 in offset cancels interest exactly like a $10,000 extra repayment, which is why the two lines in the chart sit on top of each other. The difference is practical: offset money remains yours to spend tomorrow, while extra repayments are locked in the loan unless you redraw or refinance. That flexibility can also matter for tax if the home ever becomes an investment property — see the debt recycling explainer for how borrowing and tax deductibility interact.
Path 3 — invest it, in full
The same monthly amount buys investments (many people use a diversified ETF — the mechanics are covered in our guide to investing in ETFs in Australia). It compounds at whatever return markets deliver — here, at the return you assume — and when you eventually sell, tax applies to the gain. Hold more than 12 months and resident individuals generally get the 50% CGT discount, so half the gain is taxed at your marginal rate (ATO, FY2025-26).
The point: loan returns are tax-free; investment gains get taxed at sale.
Why investing has to clear a higher bar
That tax difference is the heart of the comparison: the loan's "return" is fully after-tax, while the investment's return is taxed on the way out — so investing has to clear a higher bar than a naive rate-vs-rate comparison suggests. The break-even line above shows exactly where that bar sits for your bracket.
How we work this out (full method + worked example)
Your minimum repayment. We first compute the normal monthly repayment on your balance, rate and remaining term with the standard amortisation formula — the same engine as our mortgage repayment calculator. All three paths keep paying that minimum; only the spare cash differs.
- Simulate month by month the loan runs at your rate ÷ 12
- Path 1 pays minimum + spare into the loan
- Path 2 adds the spare to the offset balance; interest is charged only on (loan − offset)
- Path 3 contributions compound monthly at your assumed return ÷ 12
- Measure the benefit each path is compared with someone paying only the minimum
- Estimate CGT at the horizon gain × your marginal rate × 50% if the discount toggle is on (gain = portfolio value − contributions)
- Chart after tax the invested line is shown after that estimated tax at every point, as if you sold in that year, so the lines stay comparable
While the loan is alive, each loan path's benefit grows exactly like a savings balance compounding at the loan rate — which is why "paying off the loan is a guaranteed return at the loan rate" is not a metaphor but arithmetic. If a path clears the loan before your horizon, we let the freed-up repayments pile up as cash earning nothing — deliberately conservative, because what you would do next is a separate decision.
Worked example (the defaults): $600,000 at 5.5%, 27 years to run.
| Step | Result |
|---|---|
| Normal minimum repayment | about $3,559 a month |
| Put $500 a month extra in for 10 years | you owe $79,754 less than the minimum-only path |
| …made of your payments | $60,000 |
| …plus interest you never pay | $19,754 |
| Invest the same $500 at an assumed 7% | $86,542 before tax |
| Estimated CGT ($26,542 gain, half-taxed at a 32% marginal rate) | −$4,247 |
| Invested, after estimated CGT | $82,296 |
| Investing finishes ahead on paper by | about $2,542 |
| Break-even return | near 6.4% a year |
Assume more than that break-even and investing wins on paper, less and the loan wins. The loan's 5.5% is guaranteed either way; the 7% is not.
What we deliberately leave out.
- Variable rates move — we hold yours constant.
- Investments pay dividends and distributions that are taxed each year rather than only at sale — including franking credits (see the franking credits calculator).
- We ignore brokerage, fund fees, offset account fees and inflation.
- CGT law can change — the May 2026 Budget proposed replacing the 50% discount from 1 July 2027, which was not legislated as at July 2026.
Treat the output as a structured way to think, not a promise.
Frequently asked questions
Is paying off the mortgage really a guaranteed return?
Yes, in one narrow sense. Every dollar you take off the loan stops interest being charged at your loan rate, so it effectively earns that rate with no market risk. And because interest you avoid is not income, there is no tax on the saving — for an owner-occupier home loan it is genuinely an after-tax, risk-free result. An investment return, by contrast, is an assumption: markets can return more, less, or lose money over any period, and past performance is not a reliable guide to future returns.
What is the difference between an offset account and extra repayments?
Financially they are near-identical. Ten thousand dollars in a 100% offset account cancels the interest on ten thousand dollars of loan, exactly as a ten-thousand-dollar extra repayment does — this calculator shows the two landing in the same place. The practical difference is access. Offset money stays yours to withdraw at any time. Extra repayments sit inside the loan: getting them back means using redraw, if your loan allows it, or refinancing, and redrawing can have tax consequences if the home later becomes an investment property.
How is the investment taxed when I sell?
Selling shares or fund units for more than they cost creates a capital gain. Australian resident individuals who hold an asset for more than 12 months generally receive a 50% capital gains tax (CGT) discount, so only half the gain is added to taxable income and taxed at their marginal rate (ATO). That is what the CGT toggle in this tool applies at your chosen horizon. As at July 2026 the 50% discount is current law, but the May 2026 federal Budget announced a proposal to replace it with cost-base indexation and a minimum tax from 1 July 2027 — that change has not been legislated, so check the ATO before relying on the discount for future sales. The tool also simplifies by taxing all growth as one gain at the end; in real life fund distributions are taxed each year as they are paid.
What about franking credits on Australian shares?
Franking credits are credits for company tax already paid before a dividend reaches you. Most large Australian companies pay company tax at 30% (smaller base-rate entities at 25%), and a fully franked dividend carries a credit at that rate which offsets your own income tax (ATO, FY2025-26). This calculator does not model dividends or franking — it treats the assumed return as pure growth taxed as CGT at the end — so the after-tax result for a portfolio heavy in Australian dividend-paying shares can differ in practice. The mechanics are covered neutrally in franking credits explained and the franking credits calculator.
Should I just do both?
Many people split their spare cash — some against the loan or in offset for the guaranteed saving, some invested for higher assumed growth — and nothing says you must pick one path. The right mix depends on your loan rate, tax bracket, time frame, job security and how you handle market falls. This tool shows the trade-off at your numbers; it cannot tell you what to do. For decisions this large, consider licensed financial advice.
Your call
Find your break-even number above — that's the whole game. If your mortgage rate's above ~5.5%, the maths leans toward the mortgage: a guaranteed return beats an expected one, and the sleep comes free. If your rate's low, your buffer's solid and the money can sit for a decade, the numbers start leaning toward the index fund. And if it's genuinely line-ball, that's what a split is for — a 70/30 people stick with tends to beat a perfect answer abandoned at the first rate rise. Your call.
General information only — an estimate, not financial, tax, credit or legal advice. Tax figures are FY2025-26, verified July 2026. Confirm with the ATO or a licensed adviser before acting.
Sources: ATO — Tax rates: Australian residents (FY2025-26 brackets; the dropdown adds the 2% Medicare levy); ATO — CGT discount (50% for resident individuals, assets held over 12 months); ATO — Changes to company tax rates (30% general rate; 25% base-rate entities, relevant to franking); Moneysmart — Choosing a managed fund (“past returns are not a reliable guide to future returns”). The 2026-27 federal Budget (12 May 2026) announced a proposed replacement of the 50% CGT discount from 1 July 2027; it had not been legislated as at July 2026.