Should you pay off your mortgage faster or invest the extra money?

If you’re in a solid financial position and have some extra money left over each month, you might be wondering: should I use it to pay down my mortgage faster, or invest it?

It’s a great question, and the short answer is: it depends on your goals, financial situation, and how comfortable you are with risk.

Paying down your mortgage

Making extra repayments on your mortgage can help reduce the overall interest you pay and shorten the life of the loan. Because home loans are usually long-term and interest accumulates over time, even small additional repayments can make a noticeable difference over time.

There’s also a psychological benefit. Reducing debt can feel rewarding, and paying off your mortgage sooner may give you a greater sense of security, particularly if you’re planning to retire or reduce your working hours in the near future.

Keep in mind that if you’re on a fixed-rate loan, there may be limits on how much extra you can repay without incurring break fees. It’s worth checking your loan terms before making additional payments.

Putting your money into investments

Investing your extra funds, whether into managed funds, KiwiSaver, or other long-term assets, may offer the potential for higher returns over time. Depending on market conditions and how your money is invested, the return could be more than what you’re saving in mortgage interest.

That said, investment returns aren’t guaranteed, and markets can fluctuate. It’s also important to consider your timeframe and how easily you can access the money if needed. For example, money in KiwiSaver is generally locked in until retirement, if you’ve already used it for your first home purchase.

Investing is a long-term strategy, and the right approach depends on your financial goals, risk tolerance, and how you want your money to work for you.

Other things to consider

Emergency savings: Before committing extra money to your mortgage or investments, it’s generally a good idea to have a financial buffer in place. This can help you manage unexpected expenses without relying on credit.

Loan flexibility: If you’re considering making extra repayments, check whether your current mortgage structure allows for this without penalties. Some fixed-rate loans have strict limits, while floating-rate or revolving credit options are more flexible.

Your long-term goals: Whether you prioritise becoming mortgage-free sooner, building investment wealth, or a bit of both. Your goals will help guide the best use of surplus funds.

Why advice helps

There’s no one-size-fits-all answer and the best option often comes down to balancing interest savings, risk, access to funds, and personal priorities. That’s where speaking to a financial adviser can make a difference.

We can help you understand how your loan works, how different repayment strategies might affect your situation, and what to consider before investing or changing your loan structure. Talk to us today for personalised support.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.