Pay off the mortgage or invest?

Do I pay off the mortgage quicker – or invest?

One of the most common questions we hear is: “Should we throw extra money at the mortgage, or invest it instead?”

For many families in their 40s, this tug-of-war is the biggest wealth decision they wrestle with. Let me show you how Bandit and Chilli look at it — and why the “right” answer often surprises.

Meet Bandit & Chilli (again)

Bandit is 42, earning $260,000 a year. Chilli is 40, making $140,000. Together they bring in $400,000. They live in a home worth $1.4 million, with a $400,000 mortgage.

They’ve got $700,000 in super and $120,000 in their offset account. Every month, they can comfortably set aside $5,000.

Scenario 1 – Pay off the mortgage

The benefits of paying extra into the mortgage are:

1. Guaranteed return. Every dollar extra saves the mortgage interest rate — say 5% — tax-free.
2. Psychological comfort. Seeing the loan shrink feels safe and satisfying.
3. Less debt risk. In market downturns, no one can take away the security of a smaller mortgage.

Suppose Bandit and Chilli direct $5,000 a month to extra repayments instead of investing. In a little over 5 years, their mortgage would be gone — and they will own their home outright. That’s huge peace of mind.

Scenario 2 – Invest outside super

By investing the benefits are:

1. Higher likely return – Long term returns of 8-10% (or higher) are reasonable to expect with a well-diversified portfolio. The kicker here, is this is not guaranteed.
2. Personal growth – You shift from saver to investor, which brings real satisfaction once your investments outweigh your mortgage.

Suppose they invest the $5,000 a month in Chilli’s name (she is in the lowest tax bracket), after 13 years (when Bandit is 55), they would have about $1.1 million with an 8% return.

Scenario 3 – Invest it in Super

If instead of investing in Chilli’s name they invest this $5,000 a month into Super they would save around $150,000 in tax.

They’ve put in the same amount, into the same asset — but inside super it grows to $1.25 million instead. This is why financial advisers always go on about Super, because it is the easiest way to minimise tax.

The downside is Bandit can’t access his Super for another 5 years.

The Bottom Line

Paying down debt is comforting. But with strong incomes and a long-term horizon, investing is the path to real wealth and financial freedom.

Investing through Super is by far the most tax effective way to invest and will leave you with a significantly higher net worth. The downside is it can’t be accessed until you meet certain conditions of release, most notably that you turn 60.

For families like Bandit and Chilli, the smartest move isn’t choosing just one scenario. It’s combining all three, and even adding strategies like debt recycling to boost tax efficiency.

We specialise in helping professionals and executives grow and protect their wealth so they can live an abundant life. If you would like to discuss how you could benefit from independent financial advice, book a chat via the button below or contact us on 02 6269 3339 or at team@constructwealth.com.au.