Should you pay off your mortgage early or go solar? A Perth comparison

One of the most common questions from Perth homeowners: "If I have $8,000 spare, is it better to put it toward the mortgage or install solar?"

The answer depends on your mortgage interest rate, your electricity usage, and how you value certainty vs energy independence. Here's how the comparison actually works.

The baseline: what does paying off the mortgage return?

When you make an extra mortgage payment, you earn a guaranteed return equal to your mortgage interest rate — because you're avoiding paying interest on money you owe.

At 6.5% variable rate (mid-2026 Perth typical):

• Extra $8,000 paid off mortgage = $520/year in avoided interest
• Return: 6.5%, tax-free (you don't pay tax on avoided interest)
• Risk: essentially zero — your mortgage balance is a certain liability

This is your hurdle rate. Solar needs to beat 6.5% annually to be the better financial choice.

What does solar actually return in Perth?

A typical 6.6kW Perth solar system:

• Installed cost after STC rebate: approximately $5,500–$7,500 (depending on panels and inverter)
• Annual generation: approximately 9,800–10,500 kWh
• Self-consumed (at 33.26c/kWh avoided): approximately 6,000–7,000 kWh × 33.26c = $2,000–$2,330
• DEBS export income (at ~6c average): approximately 3,000–4,000 kWh × 6c = $180–$240
• Total annual benefit: approximately $2,200–$2,570

Return on a $7,000 investment: $2,200 / $7,000 = 31% in year 1

Over a 10-year payback analysis (accounting for panel degradation of 0.4%/year):

• Average annual benefit: approximately $2,050
• 10-year cumulative: approximately $20,500 on a $7,000 investment
• Effective annual return: approximately 16–20% per year over the investment period

This vastly exceeds the 6.5% mortgage rate.

Why the comparison isn't as simple as the numbers suggest

Mortgage interest is guaranteed; solar returns are not

A 6.5% mortgage return is certain. Solar savings depend on:

• Your actual consumption vs what the system generates
• Grid electricity prices (which have risen 27% in 5 years — improving solar returns retroactively)
• Panel degradation (generally well within spec, but actual)
• Whether you'll change behaviour after installation

The solar return is highly likely to exceed 15%, but it's not guaranteed the way mortgage interest savings are.

Solar doesn't reduce your mortgage liability

Paying off the mortgage reduces what you owe. If the property must be sold, a lower mortgage balance gives you more equity. Solar increases the property's value (estimates suggest 3–5% premium for solar homes in Perth), but this is a market-dependent effect, not a guaranteed balance-sheet improvement.

You might be able to do both

A solar loan (personal loan or green home loan) at 7–9% lets you install solar without depleting your offset account or redraw capacity. If solar saves $2,200/year and the loan costs approximately $600/year in interest (7% on $7,000 over 5 years), you're net positive from year 1, and the loan is paid off within 4 years. After that, the savings flow entirely.

This "finance the solar, keep cash in offset" approach can let you do both — benefit from solar economics while retaining mortgage flexibility.

Decision framework

Solar is likely the better choice if:

• Your electricity bill is above $1,500/year (you have high self-consumption potential)
• Your mortgage interest rate is below 7%
• You plan to stay in the home for at least 5 years
• You're on or considering Midday Saver (significantly improves solar economics)

Paying off the mortgage is likely better if:

• Your electricity usage is very low (small household, often away)
• Your mortgage interest rate is above 8–9%
• You're planning to sell within 2–3 years
• The property has genuine roof constraints limiting system size

Do both if:

• You have a low-cost solar loan available (green home loans from major banks)
• Your offset account balance is enough to sustain emergency buffer AND fund solar

What about batteries?

Adding a battery to this comparison makes the mortgage payoff more competitive for now. Batteries are typically $8,000–$14,000 and currently return 7–12 years payback on pure electricity savings (improving on Midday Saver). This is still better than a 6.5% mortgage rate, but the margin is narrower.

Solar only: strongly favours solar over mortgage paydown. Solar + battery combo: still favours solar over mortgage paydown, but by a smaller margin. Solar first, battery at retirement or when prices improve further.

Perth electricity prices: the wildcard that keeps tilting toward solar

Every 5% increase in electricity prices extends the advantage of solar over mortgage paydown. Perth electricity has risen approximately 5.5%/year on average since 2022. If this trajectory continues, a solar decision made in 2026 will look progressively better with each passing year — while the mortgage interest saving remains fixed at your contracted rate.

Solar cost estimates reflect mid-2026 Perth market pricing after STC rebates. Mortgage rate comparison uses 6.5% variable as a representative rate. Individual household returns vary. This is not financial advice — for decisions involving significant capital, consult a financial adviser.