Invest vs Offset — Should You Invest or Pay Down Your Mortgage?
Compare investing vs mortgage offset after CGT and dividends.
Comparison Inputs
Tax rates and thresholds vary by year
Mortgage / Offset
Investment
Comparison Inputs
Tax rates and thresholds vary by year
Mortgage / Offset
Investment
Investing wins
Advantage
$18,862 for investing
Breakeven investment return: 5.5% p.a.
Marginal tax rate: 32%
- Offset interest saved
- $30,000
- Investment net gain
- $45,575
- Investment growth
- $53,397
- CGT payable
- $4,535
- Dividend tax
- $3,288
- Period
- 10 years
At 8% returns, investing beats the offset by $18,862 over 10 years (after CGT). Your breakeven rate is 5.5%.
Strategy Breakdown
Offset Account
- Amount in offset
- $50,000
- Loan rate
- 6%
- Total interest saved
- $30,000
Tax-free — offset savings are not taxable income.
Invest in Shares
- Final balance
- $103,397
- Gross gain
- +$53,397
- CGT (50% discount)
- -$4,535
- Dividend tax
- -$3,288
- Net gain after tax
- $45,575
Sensitivity Analysis
How the outcome changes at different investment return rates. Your loan rate is 6.0%. Breakeven return rate: 5.5%.
| Return Rate | Investment Net | Offset Saved | Difference | Winner |
|---|---|---|---|---|
| 4% | $20,776 | $30,000 | -$9,224 | Offset |
| 5% | $26,932 | $30,000 | -$3,068 | Offset |
| 6% | $33,636 | $30,000 | +$3,636 | Invest |
| 7% | $40,930 | $30,000 | +$10,930 | Invest |
| 8% | $48,862 | $30,000 | +$18,862 | Invest |
| 9% | $57,481 | $30,000 | +$27,481 | Invest |
| 10% | $66,838 | $30,000 | +$36,838 | Invest |
| 12% | $87,995 | $30,000 | +$57,995 | Invest |
Estimate CGT on investment gains
Calculate capital gains tax if you sell the investment.
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How the Comparison Works
The Core Trade-off
A mortgage offset account reduces the loan balance used to calculate interest. If you park $50,000 in your offset and your loan rate is 6%, you save $3,000 per year in interest \u2014 completely tax-free. The alternative is investing that $50,000 in shares, which might earn higher returns but creates tax obligations: capital gains tax when you sell, and income tax on dividends along the way. This calculator does the maths on both sides and finds the breakeven point.
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 with 50% Discount
Capital gains on shares held over 12 months get a 50% discount. Only half the gain is added to your taxable income at your marginal rate.
Dividend Tax & Franking
Dividends are taxed at your marginal rate, but franking credits offset company tax already paid. Fully franked dividends from ASX companies carry a 30% credit.
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 always higher than your loan rate.
When each strategy typically wins
Offset tends to win when\u2026
- Your home loan rate is high (above 6%)
- You\u2019re in a high marginal tax bracket (37%+)
- You prefer guaranteed, risk-free returns
- Your investment horizon is short (under 5 years)
Investing tends to win when\u2026
- Your home loan rate is low (under 5%)
- You expect strong long-term share market returns (8%+)
- You have a long time horizon (10+ years) to ride out volatility
- Your taxable income is lower (lower marginal tax rate on gains)
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
Why is the breakeven rate higher than my loan rate?
Offset account savings are tax-free — every dollar of interest saved goes straight to your bottom line. Investment returns, however, are taxed: capital gains attract CGT and dividends are taxed at your marginal rate (reduced by franking credits). So you need to earn more than your loan rate on investments just to match the after-tax benefit of the offset.
How does the 50% CGT discount work here?
If you hold investments for more than 12 months, only half of your capital gain is added to your taxable income. This calculator assumes you hold for the full comparison period, so the 50% discount applies for periods longer than one year. This significantly reduces the tax on investment gains.
What are franking credits and how do they affect the comparison?
When Australian companies pay corporate tax on profits and then distribute dividends, franking credits represent the tax already paid. You include the credit in your income but also get it as a tax offset. At a 30% company tax rate, a fully franked $70 dividend has a $30 franking credit, so you declare $100 income but get $30 back. This reduces the effective tax on dividends.
Does the offset account actually grow?
No — the offset account balance stays the same (your lump sum sits there). The benefit comes from reducing the interest charged on your home loan. The “saving” is the interest you don’t pay, which is calculated as the offset balance multiplied by your loan interest rate. This saving is tax-free because it’s a reduction in expense, not income.
What if my loan is on a variable rate?
This calculator uses a fixed rate for the comparison period. If your loan rate changes, the offset benefit changes proportionally. In a rising rate environment, the offset becomes more valuable; in a falling rate environment, investing becomes relatively more attractive. You can re-run the comparison with different rate assumptions.
Should I consider risk in this decision?
Absolutely. The offset account provides a guaranteed, risk-free return equal to your loan rate (tax-free). Share market investments carry volatility — returns in any given year could be negative. The breakeven rate is the minimum average return needed, but actual returns fluctuate. Risk-averse investors may prefer the certainty of the offset, even if the expected return from investing is higher.
What about investment fees?
This calculator does not deduct fees from investment returns. Management fees (typically 0.1–0.7% for index funds, higher for active funds) reduce your effective return. Subtract your fee percentage from the expected return rate before entering it. For example, if you expect 8% gross returns with 0.2% fees, enter 7.8%.
Can I split the money between both strategies?
Yes, and many people do. A common approach is to keep enough in the offset to cover a comfortable buffer (e.g., 3–6 months of expenses) and invest the rest. This calculator compares putting the entire lump sum into one strategy, but you can model different amounts to find your preferred split.
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