Pay off home loan or invest? A realistic Australian example (3 properties in 3 years)
A Realistic Australian Example Using Cairns Property (3 Properties in 3 Years)
If you’re typing “pay off home loan or invest” into Google, you’re usually weighing up two very different and both very reasonable goals:
Certainty: eliminate the mortgage
Compounding: use equity to invest and grow net worth faster over time
This article walks through a realistic Australian case study of a couple who borrows $300,000 against their home to invest in Cairns, then compares three different outcomes at Year 10:
Hold all investment properties
Sell one investment in Year 10 and pay off the home loan
Skip investing altogether and focus solely on paying off the home loan
The key takeaway isn’t emotional, it’s numerical:
what does each decision do to net worth after 10 years?
General information only. This is not financial advice. Always seek personal credit and tax advice.
The Couple (Hypothetical, but Bank-Realistic)
Meet Tom and Elise.
Dual-income PAYG household earning $250,000 combined
No kids and no other debts (no car loans, HECS, or credit cards)
Owner-occupied home (PPOR) worth $1.1m
Existing home loan of $400,000
$300,000 accessible equity, borrowed against their home
Goal: buy one investment property per year for three years, all in Cairns
This is not an extreme example, it reflects a very typical high-income Australian household with usable equity.
The Lending Reality: Why Strategy Matters
Before any “invest vs mortgage” plan works, it must pass bank assessment.
Two rules matter most:
1. Serviceability buffers
Banks assess loan repayments at a rate at least 3% higher than the actual interest rate. This reduces borrowing power and means serviceability — not deposits — is often the real constraint.
2. Debt-to-Income (DTI) limits
From 1 February 2026, APRA will limit banks so that only 20% of new loans can be written at DTI ≥ 6 (separately for owner-occupied and investment lending).
This doesn’t ban higher DTI borrowing — but it does mean the third property requires strategy, timing, and lender selection.
Pay Off Home Loan or Invest?
Why paying off the home loan feels so good
Paying down your PPOR mortgage delivers a guaranteed return equal to your interest rate. It’s predictable, low stress, and improves borrowing capacity.
Why investing can accelerate net worth
Investing allows you to control a larger asset base earlier, giving compounding more time to work. The trade-off is higher debt, exposure to interest rates, and short-term cashflow pressure.
A key nuance many people miss:
If you borrow against your home and use those funds to buy an income-producing asset, the interest may generally be deductible provided the loan purpose and tracing are handled correctly.
The Investment Plan: 3 Properties in 3 Years (Cairns)
To keep this grounded, rents are anchored to actual Cairns benchmarks, then grown forward.
Current Cairns Rent Benchmarks
(Week ending 12 Dec 2025)
Houses: ~$697 per week
Units: ~$521 per week
The Purchases
2026 – IP1 (Unit): $550,000
Starting rent: ~$521/week2027 – IP2 (House): $650,000
Starting rent: ~$697/week2028 – IP3 (Townhouse/Duplex): $550,000
Starting rent assumed: ~$560/week
Growth Assumptions (Base Case)
Capital growth: 7% p.a.
Rent growth: 5% p.a.
These are deliberately conservative relative to Cairns’ recent performance.
Year 10 Snapshot: What the Portfolio Looks Like
By the end of 2035, under the base assumptions:
Total investment portfolio value: ~$3.01m
Total gross rent: ~$136,600 per year
(Operating costs are assumed at 25% of rent; loans are interest-only at 6.5%.)
The Three Outcomes Compared (Year 10)
Cashflow figures below are property cashflow only (pre-tax).
They exclude salaries, superannuation, and non-property investments.
A note on selling
Selling an investment includes:
agent and legal costs, and
capital gains tax (CGT), though individuals generally benefit from the 50% CGT discount if held longer than 12 months.
Despite this, selling one property in Year 10 often dramatically improves lifestyle flexibility by removing the home loan entirely.
But What About the Negative Cashflow?
Yes, investing required funding losses along the way.
Over the full 10 years:
Total cumulative negative cashflow: ~–$352,000
Average: ~–$35k per year, improving over time as rents rise
What did that buy?
Net worth investing + holding: ~$2.59m
Net worth paying off PPOR only: ~$1.79m
Net worth difference: ~$800k
After accounting for the funded losses:
Net advantage: ~$450k in favour of investing
Key insight
Investing still wins as long as capital growth averages ~5% p.a. or higher.
At 7%, the margin is comfortable.
Negative cashflow isn’t inherently bad, it’s the cost of holding assets that compound faster than their holding cost.
The Hidden Comparison Most People Miss
Paying off a home loan fast also has a cashflow cost.
To repay $400k in 10 years at ~6.5%:
Monthly repayments ≈ $4,500
Total paid ≈ $545,000
Versus a standard 30-year loan:
Monthly repayments ≈ $2,500
Total paid over the same 10 years ≈ $303,000
So the “pay off the home loan” option also demands significant cash commitment, it’s just simpler and lower risk.
Final Takeaway: Why Cairns Changes the Equation
Under conservative assumptions:
Paying off the home loan only delivers certainty but the lowest net worth (~$1.79m).
Investing creates materially higher outcomes ~$2.6m net worth.
Selling one property in Year 10 to clear the PPOR often hits the sweet spot, high net worth + low stress.
But here’s the part that should excite investors.
The above modelling uses 7% growth while the Cairns Economic Monitor has shown average growth of ~17–18% p.a. from 2022–2025.
If longer-term growth settled at just 9% p.a.:
Hold all 3: ~$3.89m net worth
Sell 1, clear PPOR: ~$3.73m net worth
Pay off PPOR only: ~$2.60m net worth
That’s a $1.1m–$1.3m net worth gap in favour of investing.
In plain English:
Paying off your mortgage is safe. But in high-growth regional markets like Cairns, the biggest long-term opportunity often comes from putting quality assets to work early then using the portfolio strategically later.
That’s how investing turns into real financial freedom, not just “owning more properties.”
Get Professional Help Buying in Cairns
If you want help building a practical, lender-aware property strategy in Cairns that fits your lifestyle and risk tolerance, speak to our team at The Buyers Co. Get in touch with our team.
