Mortgage vs super: weighing up your options

#1 Access to your money

A few factors could impact your decision here. Things like life stage, your savings balance and the length of time left on your mortgage.

Mortgage

Extra payments you make on your home loan reduce your interest charges but generally cannot be accessed in the future. However, if you have an offset or redraw facility attached to your home loan, you can reduce your interest charges by making extra payments, while knowing that you can still access that money in an emergency or for other purposes. This can be particularly handy if your rainy-day savings account is looking a bit dry.

Super

On the other hand, the money you put into your super fund typically can’t be accessed until you reach your ‘preservation age’ – this is generally age 60, but may be as low as age 55 depending on the year you were born. In saying that, making extra contributions into your super can be a great way of putting extra money aside for your future, knowing that you likely can’t dip into it until you reach your preservation age.

#2 Comparative returns

#3 Tax impacts

Here are some tax impacts that are worth considering when weighing up your options.

Mortgage

Unless you own an investment property (where you can claim on the interest charged on your home loan if the property you bought with the loan is generating taxable income), no deduction is available for interest on your family home.

Therefore, making extra repayments on your family home mortgage could be an effective strategy to save on future interest (which means that a dollar saved is a dollar earnt).

Super

There are a number of possible tax benefits from making extra contributions into super. These include a typical tax rate of 15% on investment earnings when making pre-tax contributions.

There are super strategies that may benefit you at tax time. Pre-tax super contributions (such as employer contributions under a ‘salary sacrifice’ arrangement, and personal contributions on which you claim a tax deduction) are taxed at 15%* which may be lower than your individual income tax rate. Where you do not claim a tax deduction, your personal contributions may attract a government co-contribution. Additionally, spouse contributions may receive a rebate.

If you are considering these options, the rules can be complex and limits apply so check with your accountant or adviser.

*or 30% if you earn over a threshold which is currently $250,000

So what now?

Ultimately, it all comes down to your personal circumstances and comfort zone. You might feel more at ease owning your home sooner and reducing the interest you may pay over time. Alternatively, you may feel better knowing that your extra savings are being invested inside your superannuation.