Every dollar of spare cash has to go somewhere. This is how to compare the two best homes for it — without fooling yourself about risk.
1The idea
Paying down your home loan earns you a return equal to your loan rate — and because that interest isn't deductible, the return is guaranteed, tax-free and risk-free. A 6% loan paid down is a certain 6%.
Investing instead has a higher expected return, but it's taxed (CGT) and not guaranteed. So the real question isn't "which number is bigger" — it's whether the extra expected return is worth giving up a sure thing.
2Who it's for
Anyone with spare monthly cash flow and a home loan, deciding where it should go.
Risk-averse or near a goal → the certainty of paying down debt is worth a lot.
Long horizon and steady nerves → investing's higher expected return may edge ahead.
3The worked example
$1,000/month for 15 years, a 6% home loan vs an 8% investment (after CGT):
Pay down the mortgage (guaranteed)$290,800
Invest instead (after CGT, not guaranteed)$319,440
Investing wins by+$28,640
Investing edges it — but the gap is smaller than the raw rates suggest (tax and the guaranteed nature of debt close it), and it comes with real volatility. Lower the investment return or your nerve, and the mortgage wins.
4Try it on your numbers
Pay down the mortgage, or invest?
Spare /month$1,000
Your loan rate6.0%
Invest return8.0%
Over15 yrs
Pay down the mortgage$290,800
guaranteed, tax-free, risk-free — equal to your loan rate
Invest instead$319,440
higher expected, but taxed (CGT) and not guaranteed
pay down the mortgageinvest instead
Investing wins by$28,640
5The honest caveats
The mortgage return is certain; the investment return is an assumption. Don't compare a guaranteed 6% to a hoped-for 8% as if they're the same.
This assumes a home loan (interest not deductible). For an investment loan the maths differs — interest is deductible.
There's a third option — debt recycling — that can turn your non-deductible home loan into a deductible one. Powerful, but advanced: get advice.
6How to action it
Put in your real loan rate and a realistic after-tax investment return — not a best case.
Consider an offset account: it earns your loan rate, tax-free, while keeping the cash available.
If the numbers are close, weight toward certainty — or split the difference and do some of each.
General educational information, not personal tax or financial advice. Confirm your specifics with a registered tax agent or licensed financial adviser. Figures are estimates for FY2025-26.