Should You Pay Off Your Home Loan or Invest? What the Numbers Show

Why This Question Matters More Right Now

Coming off the historic lows of 2020 and 2021, many Australians took on large mortgages at rates that have since increased significantly. The repayments that felt manageable a few years ago are now creating pressure on household budgets.

That pressure naturally triggers the instinct to pay the debt down as fast as possible. It feels like the responsible move. In some situations it is. In others, it is the decision that costs you the most over the long term.

The key is understanding what you are actually giving up when you choose one path over the other.

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The Starting Point: A $1 Million Loan at 6%

To make this concrete, here are the assumptions across all three scenarios:

• Home loan: $1,000,000 at 6% interest
• Monthly repayment on principal and interest: approximately $6,000
• Annual cost including rates and insurance: approximately $75,000 to $76,000
• Household income: two incomes of $98,000 each after tax, approximately $73,000 per person
• One income covers the mortgage. The second covers household expenses of $350 per week.
• Surplus cash available: approximately $55,000 per year
• Property growth assumption: 7% per year

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Scenario One: Pay the Loan Down as Fast as Possible

Using the $55,000 surplus entirely to accelerate mortgage repayments means total monthly payments of approximately $10,620. At that rate, the loan is paid off in 11 years.

After 11 years at 7% annual growth, the home is worth approximately $2.1 million. Debt is zero. Net worth is $2.1 million.

That is a genuinely strong outcome. Most Australians would be extremely well positioned reaching that point before 50.

The cost is what you experience along the way. Eleven years of tight budgeting, limited lifestyle flexibility, and no other income-producing assets working in the background. At the end of it, the home is paid off but there is still no passive income. If you want to do anything significant with that equity, you need to sell or borrow against it. Freedom of choice is limited.

There is also a timing risk. Life does not run in a straight line. Family planning, income disruptions, or unexpected expenses can make the aggressive repayment schedule unsustainable, which means the 11-year target stretches out anyway.

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Scenario Two: Redirect the Surplus Into Investment

Instead of using the $55,000 surplus to smash down the home loan, you use it to invest.

In year one, the home grows by 7%, generating $70,000 in equity. Combined with $55,000 in savings, you have approximately $125,000 available. You use around $110,000 as a deposit and upfront costs to purchase an investment property worth $450,000 to $500,000, keeping a buffer in reserve.

After that first purchase, you return to directing surplus cash toward the home loan. The investment property largely takes care of itself, with a small negative cash flow of $5,000 to $10,000 per year while it grows.

After 11 years, the numbers look like this:

• Home value: approximately $2.1 million
• Investment property value: approximately $947,000
• Remaining home loan: $127,000
• Net wealth: approximately $2.47 million

The home loan is not fully paid off, but $127,000 of debt against a $2.1 million property is not a problem. It is a manageable position with a significantly stronger asset base and a second property that will eventually turn cash flow positive and accelerate the debt repayment further.

The net wealth outcome is $370,000 higher than the pay-it-down-fast scenario, achieved with one additional property and without dramatically changing the monthly budget.

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Scenario Three: Scale the Strategy to Four Properties

For those with the borrowing capacity and the appetite to move more aggressively in the earlier years, the third scenario shows what happens when you repeat the reinvest and leverage strategy across four properties over four years.

After 11 years, the numbers look like this:

• Investment portfolio value: approximately $5.23 million
• Portfolio debt: $3.6 million
• Portfolio equity: $1.63 million
• Principal place of residence debt: $600,000
• Net equity position: $2.23 million
• Passive income: between $30,000 and $50,000 per year

The investment properties become income-generating assets that help pay down the home loan faster over time. The equity built across the portfolio gives you genuine options. Sell one or two properties to clear the home loan entirely. Hold them and let passive income fund your lifestyle. Transfer assets to your children and give them a foundation that most young Australians will never have access to.

This scenario requires the borrowing capacity to execute and ideally works best when started before significant lifestyle commitments like family planning reduce your flexibility. As the portfolio compounds, the third and fourth purchases require less out-of-pocket capital because equity in the earlier properties funds the deposits.

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The Real Trade-Off

Paying off your home gives you peace of mind. There is value in that and it shouldn’t be dismissed.

What it does not give you is choice. A paid-off home with no other assets still requires you to work. It generates no passive income. If you want to access the equity, you need to sell or borrow. The security is real but the freedom is limited.

Building a portfolio alongside paying down your home takes longer to feel like progress. For the first few years, the debt feels bigger rather than smaller. The payoff is that after 10 to 15 years, you have assets generating income, equity you can access without selling your home, and genuine financial flexibility that a single paid-off property simply cannot deliver.

The goal is not to avoid debt. The goal is to reach a point where your assets give you choices. That requires a strategy that goes beyond one property.

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The Bottom Line

The numbers consistently show the same thing. Redirecting surplus cash into investment rather than accelerating home loan repayments produces a materially better financial outcome over a 10 to 11-year period, even accounting for the remaining mortgage balance.

The right path depends on your age, income, borrowing capacity, and risk tolerance. What the data makes clear is that the instinct to pay down the home loan as fast as possible, while emotionally satisfying, is rarely the decision that produces the most financial freedom.

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Ready to Work Out Which Strategy Fits Your Numbers?

At Search Property, we help Australians cut through the noise and build data-driven investment strategies aligned with long-term wealth goals. Our buyers agents have helped thousands of clients build wealth through property because we focus on fundamentals, not headlines.

Book a FREE investment assessment call with Search Property. We'll discuss your goals and position, and help you build a clear plan to move forward with confidence.