Major mortgage question facing millions of Aussies after changes to tax rules: ‘Harder for most’
5 Mins Read
Paying off the mortgage faster than you need to can be quite costly. ·Getty
Last year we worked with a couple, I’ll call them Rob and Anna. They were both in their late 30s, earning a combined $250,000, with a mortgage around $750,000 and around $1,000 a month of spare cash. They were dead set on one thing – throwing every spare dollar at their mortgage to kill it as fast as possible.
This is one of the most common conversations I have as a financial adviser. The logic sounds airtight – debt is bad, paying it down feels responsible, and watching the balance drop is satisfying. It’s basic human money psychology.
But the maths says the opposite, because the gut answer here is often the expensive one.
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What they were actually choosing
When we ran their numbers, the cost of defaulting to throwing cash at the mortgage became impossible to ignore. They weren’t going to be behind because they were doing something reckless – they’d be behind because the safe-feeling option gave up a lot of growth.
The decision they were about to lock in was simple on the surface – extra repayments, or invest the same surplus. Same dollars, same effort, just a different destination. What they hadn’t done was price the gap between the two.
None of this means debt is bad or repayments are wrong. It just means the default approach deserves some number crunching before you commit to it for a couple of decades.
The real cost of paying down your mortgage
To help with the conversation with Rob and Anna, I priced both pathways forward using their spare $1,000 each month over the next 20 years, based on a mortgage interest rate of 6%.
The first path saw them continuing to aggressively pay down their mortgage. In this case, the $1,000 each month effectively earns the mortgage interest rate, tax free, every year. Over a 20 year period that was expected to deliver around $441,000 in debt reduction and saved interest.
It feels right but make sure you know what you’re giving up. ·Getty
The second path saw them investing their $1,000 each month instead. The Australian sharemarket has returned around 9.8% each year long term, but because of tax you don’t keep the full amount. If we apply a 30% tax to the investment income, the after tax return lands at around 8.6%. Putting their $1,000 a month into a diversified share portfolio on those terms, after 20 years the money would grow to be worth around $587,000.
The gap is close to $150,000 in favour of investing, after tax, and being a bit conservative with our assumptions. This means our couple with the same income, get the same lifestyle, and have the same savings rate, just a different destination for their money.
Structuring to increase the gap
And it can get better, because the $150,000 gap is when you hold investments in your personal name – but you can do better by being smart with your structuring.
Inside superannuation, the tax on your investment income drops from 30% to 15%, and gains are taxed at only 10-15%. This could lift the total investment result to $628,000 and push the gap past $185,000.
Investment bonds are another option, where you get the same 30% tax on your income, but no capital gains tax when you hold your investments for 10 years or more.
The point here isn’t that one structure is a winner, but by showing Rob and Anna some other structuring options, they could see that smart, tax efficient investing could create even more upside.
Why this matters more after the budget: ‘Harder for most’
The May 2026 federal budget has made the structure question even more important. Higher CGT on your investments, negative gearing changes, and trust taxes, these shifts have reshaped the after tax landscape for investing.
The frustration off the back of these changes is legitimate – but the takeaway isn’t to stick to the default money moves. The budget changes have made it harder for most people to get ahead, which means it’s more important than ever that you use every single available rule to your advantage. The value of getting your plan and structure right just went way up.
The wrap
The numbers above are guidelines, returns aren’t guaranteed and every household has a different starting point. The smartest moves for you depend on your risk tolerance, and whether you actually invest your surplus – rather than dip into it.
Paying down your mortgage definitely isn’t a mistake – it’s a guaranteed, tax free return that helps plenty of people sleep at night. But defaulting to it without pricing the alternative is where the real cost hides.
Rob and Anna thought the responsible move was obvious. But the maths showed a smarter alternative – that investing their surplus, in the right structure, could be worth an extra $185,000 to them over the next couple of decades.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. You can learn more about how to be smart with your money through Ben’s book Replace your Salary by investing.
If you want to learn how financial advice can help you, you can schedule a quick call here. And if you want some help with your money and investing, Ben has created a free seven-day challenge you can use to get more out of your money you can join here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
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