One of the most common questions I hear from clients is whether it is better to use surplus funds to pay down their mortgage or to invest. Mark LaMonica, CFA at Morningstar, has recently published an excellent article examining this decision.
The analysis compares the financial benefits of extra mortgage repayments with potential investment returns in the share market. Using real-world assumptions,
LaMonica highlights:
- Extra mortgage payments provide guaranteed savings on interest and accelerate debt reduction
- Investing can deliver higher returns, but results depend on market performance, taxes, and individual risk tolerance.
- Superannuation contributions can make investing particularly compelling due to tax concessions, lowering the hurdle rate needed to outperform mortgage repayment.
- An offset account may offer a middle ground, combining interest savings with liquidity.
I recommend reading this article as it outlines both the numbers and the behavioural considerations behind this important financial choice. It is a valuable read for anyone weighing up how best to use spare cash for long-term wealth creation.
https://www.morningstar.com.au/personal-finance/should-you-invest-or-pay-off-your-mortgage
And remember, the advice in this newsletter and article may not be suitable to you because they contain general advice which does not take into consideration any of your personal circumstances. All strategies and information provided in this email and article are general advice only. Please arrange an appointment to seek personal financial and taxation advice if you would like to explore your own circumstances further.
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