Should I pay off my mortgage or contribute more to super?

Whether super or your home loan is the best place for any spare money you might have will depend on your age, income, interest rates, returns and your personal circumstances. Both options have pros and cons—consider how these relate to you.

Reducing your mortgage

Focusing on repaying your home loan will reduce your overall amount of debt, in turn reducing the total amount of interest you pay.

As you pay off your home loan, the equity in your home is likely to increase, giving you the opportunity to use this for other investments.

With home loan repayments, you generally have to use after-tax dollars. However, there can be a tax advantage when you sell your home, as any profit is tax free if it’s your primary residence.

If your home loan offers a redraw facility you may be able to withdraw extra repayments you’ve made, should your circumstances change. However, check with your lender as there may be restrictions or fees that apply. Check out our extra repayments calculator to see the impact additional payments could have.

Adding to your super

Super provides less flexibility in terms of access, as the money generally isn’t accessible until retirement. However, there is flexibility in how your money is invested, as you can change your investment options at any time.

If your retirement is some way off, you’ll benefit from compound interest, which is a powerful way to build long-term wealth.

Contributing to super also offers tax benefits:

  • Less tax is applied to the portion of income going into super – currently 15% (or 30% if you earn more than $250,000 per year), which is lower than most people’s income tax rate.
  • As some of your salary is going directly into super, you’ll lower your taxable income and that could save you from paying higher rates of tax.

In addition, investment earnings are generally taxed at a maximum rate of 15%—which is usually less than income tax rates. When you come to withdraw your super, it can also be tax free. For example, if you withdraw it after you turn 60.

Learn more about the different types of super contributions or use our salary sacrifice calculator to find out how this would work for you.

Assess your financial situation

The value of both your home and your super can be affected by economic changes—your super investment returns can fluctuate, while a variable home loan interest rate can change, as can your home’s value.

As always, please don’t hesitate to get in touch or book an appointment with us to discuss which option may be better for you.


Nick Lucey BAppEc (financial planning)
Director | Financial Adviser

Nest Advisory Group

Leave a Reply