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 with the long-term discount, 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 determine your marginal tax rate for CGT and dividends.
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 your inputs, investing beats the offset by $18,862 after CGT over 10 years. Breakeven: 5.5%.
Strategy breakdown
Side-by-side after-tax outcome over the comparison period.
Offset account
- Amount in offset
- $50,000
- Loan rate
- 6%
- Total interest savedTax-free — offset savings are not taxable income.
- $30,000
Invest in shares
- Final balance
- $103,397
- Gross gain
- +$53,397
- CGT (long-term 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 |
| 5.5%Breakeven | $29,995 | $30,000 | -$5 | Tie |
| 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
Carry these inputs into the CGT calculator to model the tax payable if you sell.
Prefilled with your lump sum, projected final balance, holding period, and taxable income — adjust there if you plan a partial sale or a different cost base.
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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. Once CGT (with the 50% discount after 12 months) and dividend tax are deducted, the share market typically needs to clear a noticeably higher pre-tax return — the calculator above solves for that breakeven rate exactly.
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.
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 (equal to your loan rate) against the expected after-tax return of shares (your gross return minus CGT on capital gains and tax on dividends). This calculator handles both sides and surfaces the breakeven investment return rate — the minimum pre-tax return shares would need to clear to match the offset at your marginal bracket.
Concretely, a $50,000 lump sum at a 6% loan rate saves about $3,000 of interest in year one — tax-free. Beating that with shares takes a higher pre-tax return because CGT (with the 50% discount after 12 months) and dividend tax both eat into the result. The exact breakeven depends on your marginal bracket and is the headline output of the comparison above.
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 — unlocks the 50% CGT discount after 12 months 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 with the long-term discount
Capital gains on shares held over 12 months get the 50% discount. Only half the gain is added to your taxable income at your marginal rate.
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) — the 50% CGT discount only applies after 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 the 50% CGT discount apply and let share returns smooth across down years.
- Your taxable income sits in the 30% bracket or lower — less tax drag on investment gains and dividends, so the offset advantage shrinks and after-tax share returns become easier to beat.
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, the offset alone saves about $30,000 of interest. Run the comparison above with your own numbers — the calculator returns the breakeven rate, the winner, and the after-tax dollar advantage at your marginal bracket.
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 (with the 50% discount for shares held longer than 12 months) and dividends are taxed at your marginal rate, reduced by franking credits for fully franked Australian shares. 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 — it finds the minimum pre-tax return that nets the same as the offset at your marginal bracket.
How does the 50% CGT discount affect the comparison?
Shares held longer than 12 months qualify for the 50% CGT discount — only half of the realised capital gain is added to your taxable income at your marginal rate. Over multi-year holds the discount roughly halves the CGT bill compared with selling inside the first year, and it shrinks the breakeven return needed to beat the offset. The calculator applies the discount automatically when the comparison period exceeds 12 months; for shorter periods the full gain is taxed. You can see the CGT line in the side-by-side breakdown, and use the linked CGT calculator if you need to model partial disposals or different cost-base scenarios.
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. The same $10,000 in an offset at a 6% loan rate saves around $6,000 of interest over the decade, tax-free and risk-free. Which ends up ahead depends on your marginal bracket and the CGT and dividend tax on the investment side — exactly the 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 changes the after-tax math significantly. Instead of parking a lump sum in the offset, the strategy pays down the home loan with it and then redraws the same amount as a separate, clearly-segregated investment loan to buy income-producing assets. The investment loan interest is tax-deductible at your marginal rate, lowering the effective cost. This calculator models the simpler "offset vs taxable investment" comparison — debt recycling is a more advanced strategy that typically requires a split loan structure and accountant input, but the underlying tax arithmetic (deductibility shifts the breakeven) is what makes it work.
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.
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