Pay Off Mortgage Faster via Investments

The Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 3.85% on February 3, 2026 — the first increase since late 2023 and a reversal of three cuts made in 2025. The decision responded to inflation proving more persistent than expected, driven by stronger-than-anticipated private demand, elevated services inflation, and persistent capacity pressures in a tight labor market. The RBA judged that without this tightening, inflation would likely remain above the 2–3% target band for longer, reflecting robust economic momentum.

Australian mortgage holders now confront higher repayments as major banks passed on the full 0.25% rise within weeks, effective from mid-February 2026 in most cases. For a typical $600,000–$700,000 variable-rate loan, this adds approximately $90–$100 per month. Market expectations, as reflected in ASX interbank futures, assign non-trivial odds to another hike by May 2026, potentially lifting the cash rate to 4.10% and compounding the burden.

Mortgage stress had fallen to a three-year low of 24.5% of borrowers (around 1.19 million households) by December 2025, thanks to prior rate relief. But renewed tightening threatens to reverse that progress, with models showing stress rising to 25–27% under plausible scenarios. The impact varies by state: Victoria, Queensland, and Tasmania face the steepest projected increases, with Tasmania potentially seeing stress exceed 32% if rates move higher again.

Households already allocate more of their disposable income to required mortgage payments than the historical norm, while housing credit growth has outpaced income gains. In this context, accelerating mortgage payoff becomes more attractive: it delivers a risk-free saving equivalent to the mortgage interest rate (often 5–6% or higher for variable loans), which grows in value as borrowing costs rise. The calculus shifts against leverage-heavy strategies when rates climb, as the cost of carrying debt increases and cash-flow constraints tighten for many owner-occupiers and investors alike.