Owning a Home vs Building Wealth
We all love the idea of owning our home outright. It’s the great Australian dream. But if your goal is growing long-term wealth, there’s a bigger question to ask:
Should you focus on paying off your home loan, or should you consider investing in property instead?
There’s no one-size-fits-all answer. Both paths come with their own advantages. Paying off your mortgage gives you peace of mind and financial security. But investing in property—if done right—can accelerate your wealth creation dramatically.
The Case for Paying Off Your Home Loan First
Let’s start with the conservative route: knocking down your home loan early. It’s not a bad idea. Reducing your mortgage can save you a fortune in interest.
Here’s a simple example:
- Mortgage: $200,000
- Interest rate: 4.5% fixed
- Loan term: 30 years
- Total interest paid: $164,813 (on top of the loan amount)
Now, let’s say you add just $100 extra each month to your repayments:
- You’ll repay the loan in 25 years instead of 30
- You’ll save $31,745 in interest
If you increase that to $150 extra per month, the loan is paid off in 23 years, and you save $43,204.
Key advantages of paying off your home loan early:
- Full ownership = peace of mind
- Reduced interest over the life of the loan
- Increased equity in your property
- Greater financial flexibility in the future
If your goal is simplicity and security, this route makes sense. But if you’re prepared to take on a bit more risk and think strategically, there might be a better alternative.
What About Buying an Investment Property Instead?
Instead of funnelling every spare dollar into your home loan, you could use some of your equity or cash flow to buy a rental property. It’s a strategy that works well for investors who are focused on building an asset base.
Property investment, if done right, gives you:
- Rental income
- Capital growth
- Potential tax deductions (especially through negative gearing)
While you’re still paying off your home, your investment property could be growing in value and earning income—building wealth in the background.
Why It’s Not Just About Paying Off Debt
Yes, reducing debt is wise—but not all debt is created equal. If you’re using borrowed money to buy a high-performing investment asset, that debt is working for you.
Let’s look at how this could play out in a real-world scenario.
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Case Study: James and Lauren’s Two-Option Dilemma
Option 1: Focus Solely on Paying Off the Home Loan
- Mortgage: $300,000 over 30 years
- Principal repayments: $10,000/year
- Total interest: around $150,000 over 10 years
James and Lauren make extra repayments and chip away at the loan. After 10 years, they’ve made a solid dent—but they’ve built no additional wealth outside their home.
Option 2: Use Equity to Invest in Property
Instead, they:
- Use their home equity as a deposit
- Buy an investment property for $500,000
- The property grows to $1 million in 10 years (average growth rate of 7% p.a.)
Result?
- They’ve made a $500,000 gain from capital growth
- Their rental income is helping cover mortgage repayments
- They now have two properties, not one
That’s a significant difference. While paying off the home loan saved them interest, investing built them real, tangible wealth.
But What About the Risks?
Buying an investment property is not without risk. You’re taking on more debt, and if the market underperforms or your property remains vacant, it can impact your finances.
But the key is in buying investment-grade property—real estate in locations with strong demand, good infrastructure, low vacancy rates, and strong historical capital growth.
With proper due diligence, those risks can be mitigated.
Timing and the Power of Compounding
If you wait 10 or 15 years to invest—after paying off your home—you miss out on a full cycle of capital growth.
Property is a long-term game. The earlier you start, the more time your assets have to appreciate. It’s not just about what you save—it’s about what you stand to gain.
What if James and Lauren Took It Further?
Imagine they:
- Used the equity in both their home and investment property
- Bought a second and third investment property over time
- Saw their properties grow to a combined value of $3.5 million over 30 years
- Eventually sold a few to pay off their home loan completely
In this scenario, not only is the home loan paid off—but they also retire with a significant asset base. Their rental income supports their lifestyle. They have financial flexibility and options.
Now compare that to the alternate reality where they focused on paying off their mortgage for 30 years… and only start investing in property at age 55. They’ve lost decades of potential growth.
Which Debt Should You Pay Off First—Home or Investment?
Let’s say you have:
- $2 million mortgage on your home
- $2 million loan across investment properties
- Investment rental income: $150,000 per year
- Interest rate: 5%
Scenario A: You Pay Off the Home Loan First
- You need to cover $100,000/year in interest
- This requires after-tax income from a job or business
- You’re tied to your employment
Scenario B: You Focus on Paying Down Investment Loans
- The rental income helps cover interest costs
- Even after property expenses, you may clear $120,000/year
- That income can be used to cover your home loan
- You gain flexibility—perhaps working fewer hours or retiring early
By building cash flow from your investment properties, you reduce your dependence on employment income. That’s real financial leverage.
Tax Considerations
Here’s where things get technical. Paying off your home loan is not tax-deductible, while investment loan interest is.
So, if you direct surplus funds toward your investment loans, you’re reducing a tax-deductible expense. But if you use your cash to pay off your non-deductible home loan, you’re improving your after-tax financial position.
It’s about striking a balance. Speak with a property-savvy accountant or advisor to explore what’s best based on your taxable income and investment structure.
Investment Grade Property is Key
All of this is built on the assumption that you’re buying quality properties. Not all real estate is created equal.
Look for:
- Suburbs with historical and future growth potential
- Areas with low vacancy rates
- Properties with strong rental yield
- Locations near infrastructure and employment hubs
And that’s where SuburbsFinder comes in.
Use SuburbsFinder to Identify the Right Locations
SuburbsFinder is a powerful property research tool that helps you:
- Filter over 15,000+ suburbs using 40+ data points
- Target suburbs with:
- Median prices below $500K
- More than 8% annual capital growth
- Over 6% rental yield
- Less than 3% vacancy rates
- Compare suburb performance historically and currently
- Run feasibility studies on up to 5 properties at once
It’s everything you need to make smarter investment decisions—faster.
The decision to pay off your home loan or buy an investment property isn’t black and white. It depends on:
- Your financial position
- Your risk appetite
- Your investment goals
- The quality of advice and tools you use
But one thing is clear: waiting too long to invest can cost you more than you think.
Every year you delay could mean missing out on tens or even hundreds of thousands in capital growth.
If you’re sitting on home equity and have the ability to borrow, consider how that capital could be working harder for you.
And if you do both—manage your mortgage smartly while building a property portfolio—you may reach financial independence far sooner than expected.
Disclaimer: The reader agrees that any information provided by us is provided as general information and for general information purposes only; we have not taken the Readers personal and financial circumstances into account when providing information; we do not and have not provided legal, financial or taxation advice to the reader; the information may not be suitable or applicable to the Reader; we do not hold an Australian Financial Services Licence as defined by section 9 of the Corporations Act 2001 (Cth) and we are not authorised to provide financial services to the Reader, and we have not provided financial services to the Reader.
