Mortgage & Investment — Updated for 2026–2027
Should You Pay Off Your Mortgage or Invest? (Offset vs Shares)
Should you pay off your mortgage or invest a lump sum in shares? This calculator compares both after capital gains tax (including the 1 July 2027 changes), dividend tax, and franking credits — and surfaces the breakeven investment return you'd need to beat the offset.
Invest vs Offset
The amount you’re deciding where to put.
Mortgage / Offset
Your current variable or fixed rate. Offset savings equal this rate, tax-free.
Investment
Total annual return including capital growth and dividends.
Portion of returns paid as dividends, taxed annually.
Share of dividends with company tax already paid (franking credits).
Your situation
Used to run full tax assessments for each dividend and the final capital gain.
Investing wins
Advantage
$7,458 for investing
Breakeven investment return: 6.9% p.a.
Starting income-tax bracket: 30%
- Offset interest saved
- $40,970
- Investment net gain
- $48,428
- Investment growth
- $53,397
- CGT payable
- $4,969
- Dividend tax
- $3,288
- Period
- 10 years
- At your inputs, investing beats the offset by $7,458 after CGT over 10 years. Breakeven: 6.9%.
Strategy breakdown
Side-by-side after-tax outcome over the comparison period.
Offset account
- Amount in offset
- $50,000
- Loan rate
- 6%
- Total interest savedAssumes the lump sum and every monthly interest saving stay against the loan, so more of each fixed repayment reaches principal.
- $40,970
Invest in shares
- Final balance
- $103,397
- Gross gain
- +$53,397
- CGT on saleSold 30 June 2036 under the 1 July 2027 rules: for parcels held over 12 months, a 50% discount on growth to 30 June 2027 and indexation at an assumed 2.5% CPI after it; a 30% minimum tax can apply.
- -$4,969
- Net gain after tax
- $48,428
Sensitivity analysis
How the outcome changes at different investment return rates. Your loan rate is 6.0%. Breakeven return rate: 6.9%. Headline and sensitivity projections hold 2026-27 tax rules constant across the full period.
| Return rate | Investment net | Offset saved | Difference | Winner |
|---|---|---|---|---|
| 4% | $20,776 | $40,970 | -$20,194 | Offset |
| 5% | $27,828 | $40,970 | -$13,141 | Offset |
| 6% | $35,522 | $40,970 | -$5,448 | Offset |
| 6.9%Breakeven | $40,970 | $40,970 | +$0 | Tie |
| 7% | $41,726 | $40,970 | +$756 | Invest |
| 8% | $48,428 | $40,970 | +$7,458 | Invest |
| 9% | $54,254 | $40,970 | +$13,284 | Invest |
| 10% | $62,071 | $40,970 | +$21,101 | Invest |
| 12% | $75,548 | $40,970 | +$34,578 | Invest |
Check CGT for a specific investment parcel
Reinvested dividends create separate parcels. Start with your income, then use your broker records to model one parcel at a time.
No purchase price or sale proceeds are prefilled because combining every reinvestment into the original lump sum would overstate the capital gain.
What's next
Reviewed by Ashma Ghimire, ASA, CPA AustraliaLast reviewed 15 May 2026
Quick verdict — offset or invest?
The short answer for most working-age earners with a home loan.
For most working-age earners with a home loan above 6% and meaningful taxable income, the mortgage offset is the harder benchmark to beat than people assume. Offset savings are tax-free; share returns are not. This comparison assumes the lump sum and every interest saving remain against the loan, while after-tax dividends are reinvested. It reruns the full tax assessment for dividends and the terminal gain to solve the breakeven rate.
The "When does each strategy win?" section below breaks down the thresholds. And before either choice, high-income earners should compare against salary sacrificing into super — taxed at 15% inside the fund, it can deliver a larger guaranteed tax saving than the offset benefit alone. To weigh the compounding side of that option, project your super balance at retirement alongside the breakeven figure here.
How does the invest vs offset comparison work?
The core trade-off
Should you invest a lump sum in shares or park it in a mortgage offset? It comes down to one comparison: the guaranteed, tax-free return of the offset against the expected after-tax return of shares. The offset ledger retains every monthly saving against the loan; the investment ledger reinvests after-tax dividends. The calculator surfaces the breakeven investment return rate under those explicit assumptions.
Concretely, a $50,000 lump sum at a 6% loan rate saves about $3,000 of interest in year one — tax-free — and retained savings reduce later interest again. Beating that with shares takes a higher pre-tax return because CGT and dividend tax both eat into the result. Each tax amount is a full-assessment delta, so gains that cross brackets are not taxed at one frozen opening rate.
This comparison assumes you keep the borrowing as it is. If you are willing to restructure the loan, debt recycling converts the home loan into deductible investment debt and lowers the hurdle rate instead of raising it — the debt recycling calculator models that conversion.
Inputs that move the answer most
- Loan rate — sets the tax-free benchmark the share return has to beat.
- Marginal bracket — sizes the CGT and dividend-tax drag on the share side.
- Horizon — sets how much growth falls after 1 July 2027, where CPI indexation replaces the 50% CGT discount, and lets share returns smooth out.
- Dividend yield & franking — higher yields are taxed annually; franking credits soften that bill on AU shares.
What this calculator considers
Tax-free offset savings
Interest saved via the offset isn’t taxable income. This is the offset’s biggest advantage — it’s a guaranteed, after-tax return equal to your loan rate.
CGT before and after 1 July 2027
For shares held over 12 months, growth to 30 June 2027 keeps the 50% discount and later growth is taxed on a cost base indexed at an assumed 2.5% CPI. Gains after 30 June 2027 can also face a 30% minimum tax.
Super and debt recycling — adjacent strategies
High-income earners often compare offset and shares against salary sacrificing to super (taxed at 15% inside the fund). Debt recycling — paying down the home loan and redrawing for investment — is a third path that changes the after-tax math.
Breakeven return rate
The minimum average investment return needed to match the offset. Because investment returns are taxed and offset savings aren’t, this is typically higher than your loan rate.
When does each strategy win?
Offset tends to win when…
- Your home loan rate is high (above ~6%) — offset savings are tax-free, so the higher the loan rate the harder it is for after-tax investment returns to compete.
- You’re in the 37% or 45% marginal bracket — investment gains and dividends are taxed at your marginal rate, so the tax drag on shares is largest exactly when the offset benefit is largest.
- You prefer guaranteed, risk-free returns — the offset return is locked in at your loan rate; share returns can be negative in any given year.
- Your investment horizon is short (under 5 years) — neither the CGT discount nor indexation applies until a parcel is held over 12 months, and short horizons rarely allow long-run share returns to dominate.
Investing tends to win when…
- Your home loan rate is low (under 5%) — a lower offset benchmark makes after-tax share returns easier to beat, even for higher-tax earners.
- You expect strong long-term share market returns (8%+ pre-tax) — historical Australian share returns sit in this range; the investment calculator can stress-test it across different rate assumptions.
- You have a long time horizon (10+ years) — long horizons let CGT discounting or indexation apply and let share returns smooth across down years.
- Your taxable income sits in the 30% bracket or lower — less tax drag on dividends, so the offset advantage shrinks. Capital gains made after 1 July 2027 can still attract the 30% minimum tax, which narrows that edge.
This is not financial advice
This calculator provides a simplified comparison for educational purposes. It does not account for investment volatility, changes in interest rates, or your personal financial circumstances. Consider consulting a licensed financial adviser before making large allocation decisions.
Frequently Asked Questions
Is it better to put money in an offset or invest in shares?
The offset wins unless your investments can beat your loan rate after tax. Offset savings reduce your interest bill tax-free, so every dollar in the offset earns the loan rate in full; investments need to clear that hurdle after CGT and dividend tax, which is why the breakeven investment return is typically higher than your loan rate. For a $50,000 lump sum at a 6% loan rate over 10 years, retaining the monthly savings against the loan builds about $40,970 of benefit. Run the comparison above with your own numbers — the calculator returns the breakeven rate, the winner, and the after-tax dollar advantage from full annual tax assessments.
Why is the breakeven investment return higher than my home loan rate?
Because offset savings are not taxable income, while investment returns are taxed along the way. Capital gains attract CGT (the 50% discount on growth to 30 June 2027 and CPI indexation after it, for shares held longer than 12 months), while dividends and franking credits change assessable income and tax offsets each year. An investment has to grow fast enough to cover both your loan rate and that tax drag before it pulls ahead. The calculator solves this in reverse using full tax-assessment deltas, so bracket crossings, LITO and Medicare movements are included.
How do the CGT discount and the 1 July 2027 changes affect the comparison?
The calculator assumes you sell at the end of the period, on 30 June. A sale before 1 July 2027 uses today's rules: shares held longer than 12 months get the 50% discount. A sale on or after that date uses the enacted reform: each parcel held through 30 June 2027 is treated as sold and bought back at its value on that date, the growth up to then keeps the 50% discount, and growth after it is taxed on a CPI-indexed cost base (an assumed 2.5% a year) with no discount. The discount and indexation both need a holding period over 12 months. A 30% minimum tax can also apply to gains made after 30 June 2027, whatever the holding period, which mostly affects lower-income investors. Gift deductions and payments that exempt you from the minimum tax are not modelled. The CGT line in the side-by-side breakdown shows the result, measured as a full assessment change, and the linked CGT calculator can model a single parcel under either regime.
How do franking credits change the dividend tax calculation?
Franking credits represent corporate tax (the standard 30% rate) the company has already paid on profits before distributing dividends. You add the credit to your assessable income (the "gross-up") and claim it back as a tax offset against your own tax bill. For fully franked dividends, the practical effect is that you only pay top-up tax on the portion above the company rate at your marginal bracket; below the company rate you can receive a refund. The calculator lets you set the franking level (fully, partially, or unfranked) so the dividend tax line reflects your real portfolio mix — Australian ETFs and blue-chip shares are mostly franked, international shares are not.
Should I pay off my mortgage or invest in super?
For earners in the 37% or 45% marginal bracket, salary sacrificing into super often beats both options on pure tax savings. Concessional contributions are taxed at 15% inside the fund instead of at your marginal rate — a larger guaranteed saving than the offset benefit alone. The catch is liquidity: super is preserved until preservation age, while offset funds stay accessible. Many high-income earners maximise the concessional cap first, keep a buffer in the offset, then weigh investing what remains. (Above the Division 293 threshold of $250,000, an extra 15% applies, taking the effective rate to 30% — still well below the top bracket.) Model the super side with the salary sacrifice calculator before committing the lump sum.
How much will $10,000 invested be worth in 10 years?
At a 7.0% average annual return, $10,000 grows to roughly $19,672 over 10 years before tax — about double. If the same $10,000 and every monthly interest saving stay against a loan at 6%, the loan benefit compounds through lower later interest. Which ends up ahead depends on the CGT and dividend tax on the investment side — exactly the full-assessment comparison the calculator above runs for your numbers.
What are the disadvantages of paying off your mortgage early?
The main costs are opportunity and liquidity. Money locked into the loan (rather than an offset) is hard to access without refinancing; long-run share returns have historically exceeded typical loan rates, so very risk-averse repayment can leave compounding growth on the table; and home loan interest on your own residence is not tax-deductible, so paying it down doesn't create a deduction the way an investment loan can. An offset account softens the liquidity problem — you get the same interest saving while keeping the cash accessible, which is why this calculator compares the offset (not extra repayments) against investing.
Does debt recycling change the offset vs invest decision?
Yes — debt recycling converts non-deductible home loan interest into deductible investment loan interest, which lowers the effective cost of the borrowing and shifts the breakeven. This calculator models the simpler "offset vs taxable investment" comparison and does not model debt recycling, which needs a split loan structure and usually accountant input. If that is the question you are actually asking, the debt recycling calculator and guide model the conversion year by year.
How should I think about risk and short-term volatility?
The offset account is a risk-free return — the saved interest is guaranteed and equal to your loan rate. Share investments are not. Historical long-run Australian share returns have been higher than typical loan rates, but any given year can be negative, and single-day market drops of a fifth or more have happened multiple times in modern market history. The breakeven rate the calculator returns is the minimum average return needed to match the offset over the holding period — not a return you should expect every year. If you couldn't realistically hold through a deep drawdown without selling, the certainty of the offset is worth the lower expected return.
Can I split the lump sum between offset and investing?
Yes, and many people do. A common pattern is to keep an emergency buffer in the offset (covering a few months of expenses plus the next two or three mortgage repayments) and invest the rest. The exact split depends on your job security, dependents, and how easily you can access offset funds if needed. One advantage worth weighing: the offset balance is accessible instantly with no tax event, while selling shares is T+2 and may trigger CGT. This calculator compares putting the whole lump sum into one strategy, but you can model different splits by running it twice and adding the results — once with the amount you'd put in the offset, once with the amount you'd invest.