Should I pay off my home loan or invest? - NAB
How to decide between paying off your home loan and investing
- Paying off your home loan can save you interest and help you become debt free sooner.
- Investing may help you grow your wealth over time, but returns aren’t guaranteed.
The right option for you can depend on your goals, how comfortable you are with risk, and whether you may need access to your money later.
Why paying off your home loan may suit you
If your priority is reducing debt, putting extra money into your home loan may feel like the simpler, more reassuring option. It can help lower your balance faster and reduce the amount of interest you pay over time.
Paying off your home loan sooner may help you:
- save on interest
- reduce your balance faster
- build equity sooner
- free up cash flow once the loan is repaid
- feel more financially secure
This may suit you if you value certainty and like the idea of becoming debt free sooner.
Why investing may suit you
If your focus is on long-term growth, investing outside your home loan may be worth considering. It can be one way to build wealth outside your home and spread your money across different types of assets.
Depending on your goals, investing may help you:
- grow your money over time
- build retirement savings
- spread your money across different assets
- create another source of income in the future
Some people consider options such as super, shares, managed funds or investment property. Each comes with its own level of risk, return potential and costs.
What can change the outcome
Tax and ongoing costs
Tax, fees and ongoing costs can all affect whether investing or paying down your home loan comes out ahead.
If you’re comparing options, it can help to focus on the after-tax return, not just the headline number. Tax rules can affect investment income, capital gains and, in some cases, how investment property losses are treated. Those rules can also change over time.
Access to your money
How easily you can access your money can make a big difference.
Some investments are easier to sell than others, while options such as super are generally designed for longer-term goals. It’s worth thinking about how quickly you could get access to your money if your circumstances change.
How your home loan works
Your loan features can also play a role in your decision.
Depending on your loan type, there may be conditions around making extra repayments or accessing money you’ve already paid in. Understanding how your loan works can help you avoid surprises and make sure your approach fits your needs.
Can you do both?
In some cases, yes. Some people choose to put extra money into their home loan while also investing elsewhere.
This may appeal if you want to reduce debt while still building wealth outside your home. Whether that feels right for you can depend on your cash flow, your goals and how comfortable you are balancing certainty with investment risk.
Checklist: questions to answer yourself
If you’re not sure where to start, these questions can be a helpful place to begin:
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.