Super vs mortgage – some things to consider

It’s a dilemma we all face – are we better off directing extra money to our mortgage or our super? Pay off your debt quicker or save for your future? As with most financial decisions, it’s not a one-size-fits-all approach – no two people are the same, so there’s no straight answer on this.

There are, however, some factors to consider in deciding what’s right for you – we’ve provided an overview below to help you think about the different elements and assess the options.

Factors to consider

1. Tax impacts

With super, you have the opportunity to contribute either before or after tax. Before-tax contributions help your tax position. It’s a double-whammy - it reduces your taxable income and your money is taxed at 15% going into super (as long as you’re within your contribution cap).

When you pay your mortgage, you’re doing that with after-tax money, taxed at your marginal rate which is most likely higher than 15%. So here you need to work out your income tax savings, interest savings and expected return in super to see how it all washes up. This isn’t a straightforward exercise.

2. Access to your money

You might also want to consider whether you need access to your money, and this will depend on your personal finances and age.

If you’re close to accessing your super (say retirement is 5-10 years away) it could suit you to put the extra money in super – using pre-tax money and invested in a tax-friendly environment – and then pay off your mortgage with your super when you get it.

If you’re a long way from accessing your super, reducing your mortgage to bring down high-interest debt and with access to a redraw facility should you need money in a hurry might be a better solution for you.

3. The interest rate on your mortgage

Interest levels are an important factor. If the rates are high, your monthly mortgage payments will be higher, leaving less for super, or any other investment. Paying down a mortgage early on in the loan could significantly reduce the amount of interest you pay over time.

If interest rates are low like they are now, especially on a variable rate, you’ll likely be paying less each month on your mortgage which can free up funds for other investments or commitments.

With interest rates at historical lows right now, compare paying only 15% tax on money going into super instead of your marginal rate. Putting money in super might compare favourably at this time.

4. The expected return on your super

It’s also wise to weigh up the money saved or earned. For example, what would you save by paying more on your mortgage compared to what you would expect to earn if you invest it in super?

This is not a clear-cut calculation as variables and assumptions change over time, and past performance is not guaranteed, so it’s hard to know for certain the outcomes of each path.

What next?

As you can see, there are a number of variables that come into play when deciding whether to put extra funds into your super or your mortgage, so do your research on all aspects.

Whatever strategy you choose today, you should review from time to time to assess whether it’s still right for you in the future, particularly as your circumstances changes and interest rates and markets adjust over time.

As always, it’s best to speak to a financial planner to help you assess your personal situation when it comes to important financial decisions like this.



The information on this page has been issued by Maritime Financial Services Pty Limited (MFS). It contains general information that doesn’t take into account your individual objectives, financial situation or needs. It’s important to consider how appropriate this general information is in relation to your situation before making an investment decision. We recommend that you seek financial advice before making any decisions regarding your super or investments. The information on this page is current at the time of publishing.