If you're an Australian homeowner with one or more investment properties, all while still carrying a home mortgage, the thought has probably crossed your mind: Should I just sell my investment property and pay off my mortgage? And when to sell the investment property?

It's a big question, financially, emotionally, and strategically.

And while it's tempting to chase the security of being mortgage-free, the truth is: there's no one-size-fits-all answer. No advisor, podcast, or article can give you a perfect yes or no without understanding your full financial picture and long-term goals.

But if you're serious about finding the answer that fits you, then keep reading.

Step 1: What's Your Why?

Start by asking yourself, why do you really need to pay off your mortgage?

Here are some of the common reasons;

  • To reduce financial stress from rising mortgage repayments?
  • To simplify your finances before retirement?
  • To get rid of non-tax-deductible debt and live mortgage-free?
  • To rebalance your investment strategy?

None of these reasons are wrong. But understanding your core motivation helps shape whether selling is truly the best move or if there might be other options that give you the outcome you're looking for without giving up a potentially valuable asset.

Also ask yourself:

  • Is this decision driven more by finances, stress, or lifestyle?
  • What would being mortgage-free actually mean for my life?
  • Am I trying to solve a short-term problem with a long-term asset?

Step 2: Compare the Numbers: Is It Worth It?

Once you're clear on why you're considering selling, the next step is to look at the numbers not just in isolation, but how they stack up against your broader financial picture. This is where we shift from “how it feels” to “does it make financial sense?”

Start by getting a clear picture of what the property is actually earning you. For example, look at the annual rental income, then subtract the costs, things like mortgage interest, property management fees, council and water rates, insurance, maintenance, and any other bills you may incur.

The number you're left with is your net return. This gives you a realistic view of what the property is putting in your pocket each year.

Now compare that to what your mortgage is costing you. For example, if your investment property is delivering a 3.5% net return, but you're paying 6.3% on your home loan, there's a financial gap to consider. In simple terms, the money you've got tied up in the investment might be working harder for you if it were reducing your mortgage instead.

But numbers aren't the whole story. If your property is in a strong location, has solid long-term capital growth potential, or is part of a bigger investment strategy, it could still make sense to hold onto it. Many smart investors accept short-term cash flow losses in exchange for long-term wealth building, especially if they're in the accumulation phase of life.

At this stage, it's not about making the final decision, it's about understanding the true cost and benefit of keeping the property versus clearing your mortgage. Once you've got that clarity, you'll be in a much stronger position to decide what's right for you financially and strategically.

Step 3: Understand the Tax Implications

Here is where it gets more complex. And let's take a look at two key areas: Capital Gains Tax (CGT) and negative gearing.

  1. Capital Gains Tax (CGT)

When you sell an investment property in Australia, you'll likely pay CGT, unless you've held it since before 1985 (in which case it's exempt).

Key points to know:

  • If you've owned the property for more than 12 months, you're generally eligible for a 50% discount on the capital gain.
  • The remaining 50% is added to your taxable income for that financial year.
  • That can potentially push you into a higher tax bracket, depending on your other earnings.
  1. Negative Gearing

If your investment property is negatively geared, it means the costs (like loan interest, rates, and maintenance) are higher than the rental income. That net loss can be used to reduce your taxable income, which often results in a lower tax bill.

Selling the property means losing that tax benefit, so it's important to factor this into your decision, by being aware of your real after-tax cost of holding the property to your cashflow.

Step 4: Explore the Alternatives Before You Sell

Before you decide to sell, take a step back and explore alternatives. Because depending on your goals and situation, there might be smarter (and less final) alternatives worth considering.

Here are some options to consider:

  • Refinance your home or investment loan - Sometimes a better loan structure or lower interest rate can ease the pressure without making any major changes.
  • Sell another asset (like shares or a different investment) that might have less tax impact or be a better investment decision, based on outlook.
  • Access your equity - Rather than selling, you could draw on equity. This may be appropriate as part of a broader strategy, such as tax deferral.
  • Wait and review - The property market changes, interest rates shift, and your personal situation might evolve. Sometimes giving it six to twelve months can lead to a better outcome.

Important Note: While there are alternatives to selling, it really comes down to your individual situation. That's why it's so important to speak with a property investment advisor who can help you weigh up each option as part of your overall financial plan and map out a strategy that actually works for you.

Step 5: If You Sell - Have a Plan for the Sale Proceeds

If you do decide to sell your investment property to pay off your mortgage, the next big question is: how will you actually use the money?

Being intentional with how you use the proceeds can help you get the most out of the decision.

Here's a simple framework to help you think it through:

  • Work out what you'll actually walk away with

    After paying off the investment loan, covering selling costs, and factoring in any CGT, you'll be left with your net equity, the amount you can actually access.
  • Decide how to use the funds

    Do you want to pay down your mortgage directly and reduce debt for good? Or would you prefer to park the funds in an offset account to save on interest while keeping your options open?
  • Cover short-term priorities

    You might have a few things on the list like renovations, education, helping family, or clearing credit cards. Just make sure these don't derail your long-term goals.
  • Reinvest

    It may seem counter intuitive, but selling an investment property, to reduce non-deductible home loan debt and then buying another investment property, can be an effective form of debt recycling and retargeting your investment selection.

    Alternatively, if your objective is to reduce your debt as your priority and there is a surplus, then take the time to build a strategic plan for that money. You might direct it into your super to boost retirement savings, invest it for long-term growth, or use it to strengthen your emergency fund. The key is to make sure it's working for you, not just sitting idle.
  • Update your financial strategy

    A big change like this is the perfect time to check in on your overall plan. Has anything shifted? Are your goals still the same? 

Step 6: Speak with an Experienced Financial Advisor

On the surface, the question “Should I sell my investment property to pay off my mortgage?” sounds straightforward. But as you've probably realised after working through the steps above, it's rarely a simple yes or no.

There are a lot of moving parts, from tax implications and loan structures to market timing, long-term goals, and the emotional weight of property decisions. What seems like a clean financial move can have unintended consequences if not thought through properly.

That's why it's so important to get advice from someone who understands how all these pieces fit together.

An experienced financial advisor can help you:

  • Analyse your full financial picture, not just one property decision
  • Weigh up the impact of different options based on your goals
  • Structure the outcome to make your money work harder for you
  • Avoid costly mistakes that can undo years of hard work

The goal isn't just to pay off debt, it's to make sure your hard-earned money moves you forward, not sideways.

Before you sell, restructure, or refinance, take the time to get professional advice and review your situation strategically. A strategic conversation with a Property Investment Advisor now can save you stress, tax, and missed opportunities later.