Mortgage or Investing? Why Not Both?
08 Jun, 2025
Andrea asked me this question:
Mortgage vs investments... One or the other, or both? I have two kids (10 and 6), and we have a mortgage of $240,000. We have decided it's best to try to get rid of the mortgage before starting any investments, but I feel like I'm missing out on that time in the share market. It would be interesting to know how others see this.
An excellent question. As our KiwiSaver balances grow as a nation, plus people become aware of share market investing as a successful way to make money outside of housing, more people question whether putting additional payments towards their mortgage is the ‘right’ thing to do. Would they become wealthier if they reduced their mortgage payments and invested that money instead? The fear of missing out is real.
I’ve made a few assumptions:
As you read my response, I’ve answered it through the lens of someone on a path to financial independence, who may want the option to stop working before 65. This means that investing outside of KiwiSaver is a consideration, and that this investment would be a Total World Fund ETF, US 500 ETF, or similar.
I’ve assumed that you have created a sound financial foundation for yourself with money in the bank for short-term needs, plus you have an emergency fund. My Financial Independence series of blog posts outlines a plan to do this. You’ve got some leftover, and it's this money you are trying to decide how to deploy.
This is both a math and a psychology question.
If you make extra mortgage payments:
PROS
Become debt-free faster, giving you emotional and financial peace
Pay significantly less mortgage interest over time
Every dollar of debt paid down gives you a bump in home equity
Once mortgage-free, you instantly lower your monthly expenses, giving you more money to invest
No longer have to worry about mortgage interest rates
CONS
Investing in the share market could give you higher returns if the interest you are paying is significantly less than what the share market is earning
Money put towards your mortgage is often illiquid and hard to get out
If you invest in the share market:
PROS
Potential higher long-term returns (based on past returns) if the share market continues to have higher returns than your mortgage interest rate
Build long-term wealth in an asset that you can easily draw income from
Your investments are liquid (can easily be sold)
CONS
Share market investments fluctuate a lot
Your mortgage will take longer to pay off if you divert money to investing
Your investments are liquid (can easily be sold)
Each of these scenarios has valid pros and cons. But it’s still as clear as mud.
How about we use some simple math instead?
Let’s say:
Mortgage rate = 5%*
Expected index fund return (long-term average) = 10%*
Time horizon = 10+ years
* Completely made-up figures which are trying to guess the future!
In purely financial terms, investing wins by 5 percentage points.
Based on math alone, it makes sense not to overpay your mortgage, but to invest that extra money instead. Money invested will compound and grow over time, while your consistent payments to your mortgage will also clear your debt
Not so fast!
In my experience, gained by producing 100+ podcast episodes where people tell me in great and often confusing detail about their mortgage and their investments, plus talking to thousands of Kiwis over the last nine years, consistently following the math is never that straightforward.
We might decide to be black and white about it, and follow the math, but soon after, behaviour wins out over math every time.
It annoys me when someone boldly says, “You would be better off investing than paying off debt”. I’ll always say, “Wait up, not so fast, let’s think this through a little further”.
Therefore, don’t just focus on math.
The Perfect World
In the ideal world, if we were looking to buy a home and invest in the share market, this would be The Plan. We would never waver from The Plan:
Begin paying 15% of your take-home pay into a low-fee index fund (and/or KiwiSaver) from your first paycheque and never cease until you retire at 65
From your very first paycheque, live frugally and begin saving money for a home deposit
When your savings are high enough, put down a deposit and take out a mortgage on the cheapest home you can afford. Pay it off within 15 years, while you continue paying into your investments the entire time.
After 15 years, you will own your home, plus have a retirement fund that is growing nicely, because it has been invested in the share market for all these years. Now, pour the rest of your income into your share investments.
Retire at 65 and live off your share market investments.
In this ideal world, you have invested in the share market and paid off your mortgage concurrently.
Well done to fictional you!
Math and reality have a fist fight!
Despite starting with great intentions, NO ONE follows The Plan above. The theory is sound, but the practical application is fraught with roadblocks, aka, reality:
You started KiwiSaver/investing too late (no one told you about The Plan)
Studied at university, paid for with a student loan, thereby allocating 12% of all future income to pay your loan
Drained your KiwiSaver to buy a house
Took out car loans, credit cards, BNPL…
Got married
Share market crash + a house price slump
Housing boomed, so you bought a leveraged rental property
Share market boom, so you extended your mortgage to invest (please don’t!)
Took a career break to do an OE
Suffered from poor health
Tried all sorts of random investments (rentals, land subdivision, individual shares, precious metals, crypto)
Had a child. Then another one. And another
Started a business. Or had one go broke
Extended your mortgage for home updates, cars, boats, and holidays. YOLO
Got divorced
So much can go right in your life. But so much can go against you as well, which is why you have to consider your life when deciding whether to pay more off your mortgage or invest.
Think hard not about what you should do, but what you will likely do in the next few years. Don’t plan for the best-case scenario; plan for reality.
It’s for the reasons above that I’m extremely cautious about advocating paying minimum on your mortgage while you invest. Too many people get sidetracked. I’m hoping that Andrea might be the exception to this rule, but I’ll keep going, just in case she is not.
Reduce risk by paying off your mortgage.
Without hesitation, the best thing Jonny and I did was to pay off our mortgage. Getting that payment out of our lives meant we had more money. Becoming mortgage-free is a massive milestone. Many people who email me mention how emotionally freeing it was to get rid of debt, even if it meant delaying investing.
I’ll never know if it would have been financially advantageous for us to invest instead, simply because our life and the math are far too complicated to work out in hindsight, but it really does not matter. We knew it would give our family peace of mind to escape debt. And it did. We could never have known it then, but we gave ourselves a massive gift by doing so, because when the Canterbury Earthquakes started a few years later, being debt-free gave us a considerable amount of freedom. I was so grateful to ‘past us’ for making mortgage freedom our priority.
By owning our home during this stressful time, we removed many risks from our lives: interest rate fluctuations, job uncertainty, mental health issues, and paying on a house we could no longer live in. We packed up and moved elsewhere, all because we had the financial freedom to do so.
When you don’t owe money, you can make choices in your best interest, not your bank's.
Pay off your mortgage FAST and invest SLOWLY.
Too many people muck around with their mortgage and divvy it into different debt buckets, with varying rates of interest and time frames. This is your bank's way of making you think you are managing your money well and making you feel comfortable managing debt. It's just hiding the pea under a different cup.
You are in debt.
If you hit your mortgage hard, with no mortgage payment, you would have more money to invest and have money available to hit all your other goals. If you can pay your mortgage off while your children are still young, the impact of that decision will alter the course of their lives, as you will likely have money and investments to give them a leg up in life. This is the position Jonny and I find ourselves in now.
You should use your bank's calculators (or my ever-evolving list of trusted resources) to map out a payment plan using different mortgage payment amounts to give yourselves an obvious end date. And then, as an entire family, work towards smashing your mortgage in the face.
And because you mentioned your tamariki, you must bring them on this journey. I’ve met too many parents who “were never taught about money growing up”, and in turn, they don’t teach their kids. I’ve written a lot about setting kids up for a strong financial future. Modelling good money behaviours and skills to your children is the best way to teach them. Talk to them about what you are doing, and why and show them how the debt you owe shrinks month after month. Have something enticing waiting at the end, too, and your kids will love that!
How to invest while paying off your mortgage.
While getting after your mortgage, you should also allocate some money towards investments.
You can do this in two ways by using:
KiwiSaver
ETF or Index Fund investment
Suppose you read The Barefoot Investor by Scott Pape, or listen to Dave Ramsey, or any number of solid financial educators. In that case, they advise paying a meaningful amount of money into your retirement accounts. A guide is 15% of your combined family after-tax income.
For Kiwis, don’t be lulled into a sense of security that paying 3% + 3% (soon to be 4% + 4%) into your KiwiSaver is enough to give you an affluent retirement. Do better.
If employed, pay into your KiwiSaver via your employer, employee and government contribution. If you are in business for yourself, a stay-at-home parent, or on a journey to financial independence, voluntarily invest in KiwiSaver to get the government contribution if you would like to, and then invest in just one ETF or Index Fund too.
Tally up your employee and voluntary contributions into KiwiSaver, plus your contributions into a non-KiwiSaver investment. Are you above or below 15%?
Adjust your contributions to your investments accordingly.
Make regular, automated contributions to your investments to hit your 15% and never cease. How do you get the compounding returns you are after, Andrea? By making consistent investments over a long period.
After these investments have been made, you pour all additional income into your mortgage until it's gone.
If you do this, your FOMO should subside. You ARE an investor when you invest in a retirement fund.
Plus, continuing to invest while you pay off debt builds up your investing muscle, and it educates you about how and what to invest in, so that once you own your home outright, and have a mortgage payment looking for something to do, you know exactly where to put it. You won’t pay off your home, and then have to start searching for what to do next. Learn how to invest while getting out of debt.
I believe that part of the reason Kiwis become accidental landlords with poorly performing rental investments is because they have never learned about any other type of investment. Now is the time to learn.
Another skill to learn is tracking your net worth; this is how you map your progress. When we were pushing hard to pay off our home, I created a spreadsheet that I updated every payday, but these days, I suggest you use PocketSmith. Include your home equity, mortgage debt and share investment in your net worth, and this way, month on month, you will see your net worth rising. This will give you peace and confidence that you are making progress. What it will also show you is that you have a diversified mix with money in your family whare, plus money invested in the share market.
To illustrate, this is my current mix of assets:
Common mistakes
It is too easy to see a mortgage rate of 5% and an investment return of 10% and conclude you are a fool not to invest.
Without enough research, we fire up an investment spruiked by some company. Or we pick stocks, choose a range of ETFs or index funds, and mindlessly invest in them while saying ridiculous things like “I only invest what I can afford to lose”. Then, a news headline screams, “The share market is down,” and we panic. We might even sell. The conclusion? That share investing is terrifying.
Meanwhile, we’ve lowered our mortgage payments to meet the bank's minimum payments, and we now feel stuck with a mortgage for the next twenty years while we also terrify ourselves investing. Our take-home pay disappears before our eyes, and you feel like you are doing a lot while achieving nothing.
Common wisdom is that if the interest rate on your debt is below a certain percentage (<5%), you should pay what the bank tells you to pay and invest the rest.
In Aotearoa, mortgage rates are constantly moving, we often use floating/variable rates, and we take on very short fixed interest rate terms. This adds risk to the borrower as we don’t know where interest rates will go next. They got as high as 9% when we had a mortgage, and more recently, they got as low as 3%. Interest rates change. These days, with no mortgage anymore, I tune out to mortgage interest rates, which is extremely freeing.
Counter this with a friend who lives in America and has a 30-year mortgage with a fixed rate of just 2.75% for the life of the loan. These rates and terms are unheard of here in Aotearoa.
While I get the math about not paying extra on a low-interest rate loan, I also know Kiwis. And we are shockingly bad at not planning and changing direction. For example, a Kiwi might make a plan to pay off a mortgage slowly so that we can invest, and then we throw a spanner in the works:
We move house, and increase our mortgage
Extend our mortgage to renovate
Extend our mortgage to buy stuff (car, caravan, boat, holiday, debt consolidation)
Invest in the share market, only to sell it and buy more house or more stuff
A final comment is the number of Kiwis I meet who focus on math and pay the minimum on their mortgage and the maximum into their investments. The initial goal is to invest a large amount of money that they can apply the 4% Rule to. In time, this income can then pay their mortgage payment. It’s a grand theory. However, they can’t help but meddle, and when their mortgage debt and investments are the same amount, they sell all of their investments to pay off their house. Duh! House rich and cash poor, yet again.
I’ve met Kiwis who swear black and blue that they won’t ever do this, and five years down the track, I’ve heard that this is exactly what they have done.
Put simply, we get in our own way.
Which is why, in answer to your question, I’d say to you to do both. Pay down your mortgage to get rid of it fast, and invest 15%. You get out of debt, and you learn to grow investments that you don’t feel the need to touch.
Make the mortgage your focus. And don’t muck about. Cut your costs, increase your income and get after it. Once it is done, pinky promises never to return to debt again. Now that you have money, you can invest.
Mortgage vs Investing makes a good blog title, but my answer to your question comes from years of learning. I’ve since found Rebel Finance School, and believe it to be the single best comprehensive and free resource to help you make a family financial plan, focusing on all aspects of your money. Please find the time to do it.
Get after it
A short, sharp 2-4* year push to get yourself out of $240,000 debt will be over faster than you realise. Your tamariki will be just 14 and 10 by then. And then, you are done with debt forever and can turn your income to investing. Having spent those years steadily investing 15% of your take-home pay already, you know exactly what to do and how to invest.
* 2-4 years to pay off $240,000, Ruth! Are you crazy? While I don’t know what Andrea earns, I do know that most people I meet who have a mortgage can pay it off in half the time, once they decide to get after it. Go back and read her question; she seems calm and has not specifically highlighted that they struggle to make ends meet. Also, once you have it in mind to get out of debt, many people make job and career changes that drastically increase their income. Don’t believe me? Listen to this podcast episode: I Have Stopped Sleepwalking Through My Finances
Without the weight of mortgage payments, you are ready to invest from a firm financial footing. It won’t destroy your financial life (any more than having children did) to miss out on a little investment growth for a couple of years while you pay off your home, because you have decades ahead of you to enjoy the magic of compounding.
My reality
When we became mortgage-free, a lot changed for us. We had money when we were no longer required to send half of our pay to our bank. When our daughter was born in 2007, because we had no financial pressure, I chose to be a stay-at-home Mum for almost five years. When I wanted to go back to work, Jonny was able to be a full-time stay-at-home Dad. Neither of us has ever returned to full-time work because there are so many other things we love to do, and there is no financial pressure to do so to make ends meet. The Happy Saver would never have begun if we hadn’t paid off our mortgage because we wouldn’t have had the time. We’ve created a lot of memories as a whānau, and as soon as we discovered it, we began investing in the share market, following the advice of JL Collins, which in 2023 began to provide us with income.
We didn’t know about financial independence or ETF investing when we decided to pay off our mortgage. That came later. Andrea, you are luckier than I, in that you are aware of investing, but don’t let investing be the thing that distracts you from owning 100% of your home. Debt is a phase of life, get it done, and move on.
You will find a happy medium. It sees you push hard to become debt-free while investing for future growth. Look ahead, dream and plan together. And as you move from debt to investing, the numbers are going to change, YOU are going to change. Because, while math is important, more important are your habits and behaviours in how you, in real life, manage money.
Create a plan to knuckle down and pay off your home. You will feel so accomplished, confident, motivated, and well organised that as a family, your future will be far brighter and will have more opportunities than you ever realised. Paying off your mortgage is a huge win that will give you freedom, and you can invest a little while you do it, and a lot when you are done.
Andrea said she would be interested to know how others see this; therefore, feel free to provide some helpful comments below.
