Is Paying Extra on Your Mortgage Really the Key to Financial Freedom?

Is paying off your mortgage early the dream—or is there a smarter way to build real financial freedom?

Written by William Lucas

For many Australians, paying off the mortgage early is seen as the golden ticket to financial freedom. It’s the classic goal: own your home outright, become debt free, and then relax knowing that no bank owns a slice of your biggest asset.

It’s a sensible goal but is it the most effective path to financial freedom? Or are there smarter, more balanced strategies that could get you there sooner—or with more wealth along the way?

Let’s run through how we as financial adviser’s view this and what options we explore with our clients. Sometimes this practical lens that looks beyond bias and toward strategic long-term wealth is what you need to achieve financial independence.

📉 The Case for Paying Extra on Your Mortgage

There’s a good reason so many of us prioritise extra mortgage repayments:

• Guaranteed return: Every extra dollar you pay down saves you interest at your mortgage rate, which might be around 6% these days (hopefully a little bit lower). That’s a risk-free return you can’t get anywhere else.

• Tax-free return: The interest you are saving is also not treated as taxable income so you get this return without any tax to pay, as opposed to a return of 6% on an investment which could be as low as 3-4% after tax.

• Debt freedom: There’s real peace of mind in knowing you own your home outright.

• Cash flow security: A paid-off mortgage means lower monthly living expenses, giving you breathing room if income drops or life changes.

Especially in uncertain markets or if you're nearing retirement, extra repayments can feel like a rock-solid strategy.

🧠 But Here’s the Catch…

While the benefits are clear, there’s an opportunity cost that many homeowners overlook.

Let’s say you’re paying an extra $1,000/month into your mortgage. You’re effectively “investing” that money at your loan’s interest rate (say 6%), but it’s locked in your house. You can’t access it easily unless you redraw or refinance.

Now ask yourself: Could that $1,000/month grow faster elsewhere, while still leaving you in a strong position to pay down the loan in time?

The short answer: often, yes… if structured correctly. That’s where the real path to financial freedom can open up.

💡 Alternative Pathways to Financial Freedom

Here are some other options that might deliver more financial firepower than just hammering your mortgage.

1. Building your Superannuation

If you’re thinking long term, boosting your super can be incredibly tax-effective.

Benefits include:

• Contributions are taxed at just 15% vs your marginal tax rate.

• Super investment grows in a tax-friendly environment.

• You’re forced to take a long-term mindset.

But keep in mind, super is locked away until preservation age, so this will only suit you if you have enough assets or cashflow to still do the things that are important to you before you retire (think that home reno you’ve been putting off, the Euro Summer trip that’s waiting for you).

2. Turning Bad Debt into Good Debt Using a Diversified Portfolio

If you’ve paid off extra on your mortgage, chances are you have the ability to redraw on the loan. This gives you a cheap way of borrowing money to invest, if you have the risk appetite to invest in shares or other listed assets (such as ETF’s or managed funds). Where this approach really accelerates in its benefit is that the portion of your loan you drew back on to invest will be treated as tax deductible, meaning you can claim the interest on the loan as a tax deduction each year.

Putting extra funds into shares, ETFs, or managed funds can offer higher long-term returns than your mortgage interest rate. Historically, share markets have returned around 8–10% p.a. over the long term.

The basis of this plan is that if your portfolio grows at a sufficient rate over the long term, you may have held onto more debt for longer but you end up with a larger investment portfolio that you can use to repay the debt down the track. If used correctly, you should be aiming to end up with only tax-deductible debt and no “bad debt” left.

3. Buying an Investment Property

For those with the appetite and borrowing capacity, investing in property can be a powerful wealth-building move. Using equity in your home (instead of paying the mortgage down) to fund a deposit on a second property can accelerate your financial independence.

Just be aware:

• Property investing is sometimes viewed as a safe bet but carries just as many risks as the share market (vacancies, rate rises, market dips, repairs).

• It adds complexity and responsibility.

• Leverage works both ways— borrowing to invest magnifies gains and losses.

Still, for many Aussies, a well-bought investment property is a long-term wealth cornerstone and can help to turn bad debt into good debt over time.

🧾 A Balanced Approach: The Best of Both Worlds?

In reality, you don’t have to choose only one path. Many clients I work with build freedom faster by blending strategies.

Here’s an example of a well-rounded financial strategy:

• Make minimum mortgage repayments + maintain an offset account for savings goals (holidays, renos etc).

• Contribute extra to super (especially if income is high).

• Use equity in your home to borrow and invest in growth assets (shares/property)

• Reassess regularly as circumstances, markets, and goals change.

This way, your money is working across multiple levers—paying down debt, growing wealth, and building flexibility.

🔍 Factors to Consider Before Making a Decision

There’s no one-size-fits-all answer. What’s best depends on your situation:

• Age & life stage – Younger Australians may benefit more from investing outside of superannuation to provide more flexibility. Those closer to retirement often have less aversion to building up superannuation if it’s going to be effective.

• Risk tolerance – If market volatility keeps you up at night, extra mortgage repayments might bring better peace of mind.

• Income levels – Higher income earners may get more benefit in leveraging investments and tax-efficient strategies.

• Family goals – Planning for kids, schooling, or downsizing? Your approach may shift accordingly.

This is where working with a financial adviser makes a huge difference. We help model different scenarios based on your goals, cash flow, and risk comfort—so you don’t have to rely on guesswork.

🎯 Final Thoughts: Define Your Version of Freedom

At the end of the day, financial freedom isn’t just a number. It’s a feeling: the confidence that you’re on track, that you’re not living week to week, and that you have real choices in how you live your life.

Paying off your home early is one path—but it’s not the only or always the most effective one.

So before you tip every spare dollar into your mortgage, consider the bigger picture:

• What does financial freedom actually mean for you?

• Could you use your money more strategically?

• Do you know what your future looks like?

Smart financial planning is about weighing the numbers and the lifestyle to achieve financial freedom.

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The information in this article is general information and does not take into account any person’s individual situation. You should always do your own research, or seek professional advice to assist you in making an informed decision about what suits your needs.