Scenario #2: Invest in property

If you left your mortgage on a 30-year term, you could potentially buy an investment property. This is where you borrow the deposit for an investment property against your own home. 

Then you use that $150 a week to “top up” the investment property. This is because the rent might not cover all of the costs of owning the investment, at least at the start.

So, let’s say you purchase a $620,000 Christchurch townhouse, which you assume will increase in value by 5% a year.

The same $150 a week invested in this property would generate an extra $668,935 in equity after 15 years.

So, investing in property is forecast to return 3.5x as much as paying down your mortgage.

But that doesn’t mean the answer is simply, “always buy the investment property”. 

The real question is whether you have the cashflow, income, and risk tolerance to hold the extra debt over the long term.

Shouldn’t I pay off my mortgage before I invest in property?

A lot of Kiwis feel like they should pay off their own mortgage before they even think about investing.

And that can make sense. After all, getting mortgage-free is the dream for many of us. It means security, freedom, and knowing the bank no longer has a claim over your home.

So, if you’ve got a 30-year mortgage, it’s natural to think: “I’ll pay this off first, then I’ll start investing.”

And while that option is often thought of as lower risk, it doesn’t mean it’s risk-free.

One fishhook I see is that an investor spends 20 or 30 years paying down their mortgage and can still end up ‘broke rich’.

What does “broke rich” mean?

“Broke rich” is when you look wealthy on paper, but don’t have much freedom in real life.

For example, you might own a $1.5 million house with no mortgage. That sounds great. But if you don’t have savings, shares, or other investments, all your wealth is tied up in the home you live in.

That can make you asset-rich but cash-poor. Your net worth looks strong, but it doesn’t help pay for groceries, holidays, or retirement.

That’s because your home is usually a lifestyle asset, not an income-producing one. It may go up in value, but unless you sell it, that gain doesn’t fund your life. And if you do sell, you still need somewhere else to live.

Whereas if you have rental properties or other investments, you can sell them to live on. 

Case study: Paying down your mortgage faster vs investing in shares and funds

Let’s say you currently have a $500,000 home loan. You’re paying it off over 20 years at a 5% interest rate. So, your minimum weekly payment is $761 a week. 

You’ve got an extra $200 a week. And you’re thinking about your retirement. Here are your two scenarios:

Scenario #1: Invest 

What happens if you pay off your mortgage over 20 years and use the extra $200 a week to invest (at a consistent 7% return)?

In 20 years, you’d have a mortgage-free house and $453,348.

Scenario #2: Pay off the mortgage faster

Your alternative is to use that extra $200 a week to pay down the mortgage. That means you’d be mortgage-free over 6 years earlier. Then you could invest both that $200 a week and your $761 mortgage payment. 

That means saving $961 a week for over 6 years. 

If you did this, then after 20 years, you would have a mortgage-free house and $381,407. Again, assuming that consistent 7% return.

Scenario #1 can mean that you end up with more money. That happens if your investment return is higher than your mortgage interest rate. 

Just keep in mind that your returns can go up and down. Whereas your mortgage interest rate is often more stable. 

So, investing won’t always win. But, based on historical averages, it does in this scenario.

What are the pros and cons of paying down debt vs investing?

Paying down your mortgage and investing are both ways to improve your financial position.

But they work in different ways.

Paying down your mortgage gives you a more certain return. Every extra dollar you pay off your loan reduces your debt and lowers the interest you’ll pay over time.

Investing can give you a higher return. But that return is not guaranteed. Property values can fall, interest rates can rise, and you may need to keep topping up the investment.

What’s the right fit for me?

Not sure if it’s a better idea to pay off debt or invest? Here’s one way to think about it.

If the bank won’t lend you the money, you don’t have enough equity, or the thought of more debt makes you feel sick … focus on the mortgage.

Every extra dollar you put into the mortgage reduces your debt, builds your equity, and gets you closer to being ready to invest later.

The same goes if you’re close to retirement.

If you’re 5 years away from stopping work, the last thing you may want is mortgage repayments following you into retirement. 

But if you’re 30–55, have decent equity, a stable income, and still need to build wealth for retirement … then only paying down the mortgage could hold you back.

Yes, a mortgage-free home is a great achievement. But it’s not a retirement plan.

You can’t eat your house. And you can own a $1.5 million home, have no mortgage, and still feel broke if you don’t have income-producing assets outside it.

As a general rule of thumb, pay down the mortgage if you want certainty. Invest if you prefer growth.