If you’re one of the many Australians with a home loan, a mortgage rate cut can be welcome relief. It’s also a chance to consider investing mortgage savings for long-term benefit.
There are two main options to consider. You could use the savings to make extra mortgage repayments. Or, you could invest the money elsewhere in pursuit of higher long-term returns.
There’s no single right answer. The best approach depends on your financial goals, comfort with risk, and personal circumstances.
Our Geelong financial advisors at LBW help people decide what makes the most sense for their lifestyle and future goals.
Option 1: Use your savings to make higher mortgage repayments
To show the benefit of this strategy, let’s say a borrower has a $600,000 loan with a 25-year term and a 6.00% interest rate.
If the lender passes on a 0.50% rate cut, their new rate becomes 5.50%. That reduces monthly repayments by about $183. If they keep repayments the same, they could shorten the loan term by over two years. They could also save $114,328 in interest over the life of the loan.
Our Financial planners in Geelong often support this path when people want to reduce debt and accelerate home ownership.
Option 2: Consider investing mortgage savings instead
Another option is to invest the monthly savings into growth assets such as shares. This choice brings more risk but also more potential reward.
The table below compares extra loan repayments with regular investing. It assumes an 8.2% annual return, based on Australian shares over 25 years.
| Monthly amount | Years invested | Extra mortgage repayments | Investment in growth assets |
| $183 | 30 | $114,328 | $181,214 |
Investing mortgage savings this way would result in $181,214 after 30 years. That’s $66,886 more than repaying the loan faster. Of course, returns are not guaranteed. Your results depend on market conditions, the time you’ve been in the market, and your own decisions.
LBW’s Geelong financial advisors help individuals understand these trade-offs clearly and choose a path that aligns with their goals.
Other points to think about before you start
This example assumes you can make unlimited extra repayments. Some fixed or variable loans limit this, so always check with your lender. Extra repayments may also reduce your offset account balance, which could lower the total interest saved.
When investing, be aware of the tax implications. Home loan savings are tax-free, while investments may attract capital gains tax. You also need to watch the fees. Ongoing costs and brokerage charges can reduce returns.
The longer your money stays invested, the more you benefit from compounding. Be sure the plan suits your risk comfort and time frame. These are common questions that LBW’s financial planners in Geelong help clients explore when building a personalised approach.
Speak with a Geelong financial advisor from LBW about investing mortgage savings
If interest rates fall, investing mortgage savings can help you build wealth or pay off debt more effectively.
Talking to our Geelong financial advisors at LBW helps you weigh the options and act with confidence.
Call (03) 5221 6111 or visit www.lbwca.com.au to speak with one of our trusted Geelong advisors.
This blog provides general educational information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances.
LBW Business + Wealth Advisors is an Authorised Representative of LBW Wealth Pty Ltd ABN 56 652 382 128 AFSL 534569. Please see our website www.lbwca.com.au or call 03 5221 6111 for more information on our available services.
