Should You Make Extra Mortgage Repayments or Invest Your Money Elsewhere
Investing is a hot topic at the moment, with everyone talking about the importance of setting money aside in shares, funds, or long-term investments to help create financial freedom in the future.
But what if you have a mortgage? Should you be investing? Saving? Putting the extra money toward the loan instead?
The truth is, there is no one-size-fits-all answer. It depends on your goals, your risk appetite, and where you are in your financial journey.
Here is a simple breakdown of the pros and cons so you can make a confident decision.
Make extra mortgage repayments
Paying more than the minimum on your home loan can lead to significant savings over time.
Pros
- Pay off your home faster, as every extra dollar reduces your loan principal
- Save on interest, even a small increase in repayments can save you thousands over the life of the loan
- A guaranteed return because the “return” is the interest you avoid paying
- Peace of mind, as lower debt often equals lower financial stress
Cons
- Extra repayments reduce your access to cash because the money is tied up in your property
- You may miss out on potentially higher returns from investments like shares or managed funds
- Some fixed-rate loans charge break fees for additional repayments, so always check first
Best for:
People who value certainty, want a guaranteed return, or are getting closer to retirement
Invest the extra money elsewhere
If you are comfortable with some risk and have a longer time horizon, investing your spare cash in shares, managed funds, or exchange-traded funds may grow your wealth more than simply reducing your mortgage balance.
Pros
- Potential for higher long-term returns
- Keeps your money more accessible and liquid
- Helps diversify your wealth beyond your home
Cons
- No guarantees as investment values can rise or fall
- You still carry the mortgage, and interest rates can move
- Requires more decision-making around where and how you invest
Best for:
Those with an emergency fund in place, a reasonable risk tolerance, and a long-term mindset
What about KiwiSaver
This is an important option to consider, especially for clients who have withdrawn KiwiSaver funds for their first home and are now looking to rebuild their retirement position.
Redirecting some of your extra money into KiwiSaver can help restore the long-term balance of your retirement plan, and for many people, the combination of employer contributions and potential investment growth makes it one of the strongest long-term savings vehicles available.
For some clients, topping up KiwiSaver may offer better long-term value than either full extra mortgage repayments or general investing, depending on their goals and age. It can also help ensure that using KiwiSaver for a first home does not compromise retirement later in life.
A bit of both
If you are unsure which path suits you best, splitting your extra money between your mortgage, KiwiSaver, and investing can create a balanced middle ground.
For example, if you have an extra 400 dollars a month:
- Put 200 dollars towards your loan
- Invest 100 dollars into shares or a managed fund
- Contribute 100 dollars to KiwiSaver to rebuild long-term retirement savings
This allows you to reduce debt while also growing multiple forms of wealth.
What to consider
Ask yourself:
- What are my financial goals: freedom, security or early retirement?
- Do I have a sufficient emergency fund?
- Am I planning to buy another property or need equity later?
- Is my mortgage interest rate higher or lower than the expected return on my investment/s?
- Would having less debt or more investments help me sleep better at night?
- Have I withdrawn KiwiSaver for my first home, and do I need to rebuild my retirement savings?
Everyone’s financial situation is different, so the right approach depends on your goals, risk tolerance, and current loan structure. As your mortgage adviser, the Loan Market Queenstown team can help you understand the impact of extra repayments, investment options, and KiwiSaver contributions, and design a strategy that supports both home ownership and long-term wealth creation.
Book a free chat or get in touch and let us help you make your money work smarter, not harder.