Pay down mortgage or boost super?

Pay down mortgage or boost super?

You might be wondering what to do with your cashflow given the recent rise in home loan interest rates. Should you pay off your mortgage faster or save more in super? While the answer depends on your personal situation, investing more in super may make your money work harder.

Super can be more tax‑effective

A great thing about super is you may be able to contribute pre-tax salary (if you’re an eligible employee) or claim personal contributions as a tax deduction.

With your mortgage, on the other hand, repayments are made with after-tax income and are not tax deductible (unless the property is an investment and other conditions are met).

Saving more in super can be a smarter way to use your extra money.

The table below illustrates the additional benefit of investing in super at different income levels, assuming $10,000 in pre-tax income is available.

For example, if you earn between $120,001 and $180,000, with $10,000 in pre-tax income, you could make a net loan repayment of $6,100 or invest a net amount of $8,500 in super. That puts you $2,400 ahead by making extra super contributions.

Taxable incomeHome loan repaymentNet super investment1Benefit from investing in super
Marginal tax rate2Tax payableNet loan repayment
$45,001 to 120,00034.5%$3,450$6,550$8,500$1,950
$120,001 to $180,00039%$3,900$6,100$8,500$2,400
$180,000 +47%$4,700$5,300$8,500$3,200

1 Table above takes into account 15% tax on super contributions. Where income from certain sources (such as concessional super contributions and taxable income) exceeds $250,000 pa, an additional 15% tax will be payable on super contributions.
2 Includes Medicare Levy.

Other considerations

While super is generally more tax-effective, the next table compares some other issues.

Importantly, investing more in super wouldn’t be a suitable option if you needed the money before you retire. But you may be able to use some of the additional super you build up to make a large mortgage repayment when you retire and end up ahead.

There are, however, some caps on how much you can contribute to super and use to start a retirement pension, which may impact your decision.

We can help you weigh up the pros and cons and decide how to use surplus cashflow to achieve your near and longer-term needs.

Invest in superRepay mortgage
Earnings depend on chosen investment strategy, market conditions and time horizonNet investment earnings at home loan interest rate
Money can't be accessed until you retire or meet other conditionsMoney can usually be re-drawn at any time
There are caps on how much you can contribute to super and use to start a retirement pensionThere are no legislated caps that apply to mortgage repayments