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Mortgage v super: Which should I prioritise?

  • August 10 2021
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Mortgage v super: Which should I prioritise?

By Zarah Mae Torrazo
August 10 2021

Are you better off putting your extra money into your home loan or your super fund? We lay out the pros and cons of both options, as well as other factors to consider when deciding.

Mortgage v super: Which should I prioritise?

Mortgage v super: Which should I prioritise?

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  • August 10 2021
  • Share

Are you better off putting your extra money into your home loan or your super fund? We lay out the pros and cons of both options, as well as other factors to consider when deciding.

Mortgage v super: Which should I prioritise?

Picture this: you have an extra $500 per month and you’re wondering whether you should use the extra cash to pay off your home loan faster or to top up your super fund.

Or maybe you are expecting a large tax refund worth thousands of dollars and you’re thinking whether you’ll get more of your money’s worth by making additional contributions to your mortgage or your super. 

As with most financial decisions, there is not a one-size-fits-all approach – no two people are the same, so there’s no straight answer to this question.


To help you decide, let’s take a look at the basic pros and cons of both options, as well as other factors that you should take into account when choosing. 

Choosing to pay extra into your mortgage

 The pros 

  •  Lower interest rates on your mortgage 

By making extra repayments on your home loan, you can potentially lower the interest rate on your mortgage, potentially saving you a significant amount of money. It can also help you pay off your mortgage faster. 

These savings (both time and money) could be invested and used for your retirement – or simply enjoyed.

  •  Boost your equity

Investing into your mortgage will boost your property’s equity. You can use this credit to renovate your property and also increase its sale value.

  •  Financial liberation

While it’s not a financial benefit, many people feel better having paid off their mortgage and that they own their home outright.

Paying off your home loan faster can also be beneficial to your long-term financial position. The Treasury’s Retirement Income Review of 2020 noted that home ownership and home equity was crucial to a comfortable retirement, and even noted that the home was the most important component of voluntary savings.

“Home owners have lower housing costs and an asset that can be drawn on in retirement. If the decline in home ownership among younger people is sustained into retirement, there will be an increasing number of retirees who rent,” the review found.

Additionally, home owners also have the opportunity to access the equity in their homes to supplement retirement income and manage longevity risk. 

  •  Access to money 

You may still be able to access your money if your mortgage has a redraw facility or offset account attached to it.

If you are using redraw, make sure you find out if any fees apply and if there is a minimum or maximum amount you can redraw. Also remember that if your financial circumstances change, your lender can shut down your redraw.


  • Lack of tax incentives

Unlike with super, there are no tax perks that come with adding money into your mortgage or paying off your home loan early. If you choose to pay down your mortgage instead of maxing out your tax-advantaged retirement accounts, you will give up those tax savings.  

  •  Cheapest debt to pay off

A home loan is often the cheapest credit you can get. Because of this, it should be the last debt you pay off after your other debts such as credit cards, personal and business loans.

  •  Lack of liquidity

As mentioned, you can still access your money with a redraw facility or offset account. However, for most people, their money is tied up in their homes. Though you would still have your home equity to tap into, selling your home and accessing those funds may prove difficult.

Meanwhile, there are special circumstances when you can access your super, if you are qualified based on Service Australia’s guidelines

Choosing to pay extra into your super 

The pros

  •  Bigger super balance in retirement

The biggest advantage of making extra contributions to your super is that you will have more money come your retirement. If you choose to do salary sacrificing each month, even a few hundred dollars would boost your balance significantly. 

  •  Tax advantage

If you choose to put more money into your super, you have the opportunity to contribute either before or after tax.

Before-tax contributions help your tax position. Any before-tax money that you put into super is taxed at just 15 per cent (as opposed to whatever your marginal tax rate is). You may also be able to claim a tax deduction if you make an after-tax contribution. 

Meanwhile, if you choose to pay your mortgage, you’re doing that with after-tax money, taxed at your marginal rate, which is most likely higher than 15 per cent. 

Before choosing to pay more money in your super contributions, make sure you’re within your contribution cap. Most employers simply pay the minimum superannuation guarantee (SG) contribution, but others contribute more than the minimum through pre-tax salary sacrificing.

Know how much extra your employer is contributing so you don’t go over the Australian Taxation Office’s concessional contribution cap.

The cons

  • Lack of access to money 

The biggest disadvantage of putting extra money into your super is that you will not be able to access your money until you meet a ‘condition of release’. This includes reaching your preservation age and retiring; reaching your preservation age and choosing to begin a transition to retirement income stream while you are still working or are 65 years old (even if you have not retired).

You also never know when the rules around super may change, so this may be different in the future.

Other factors to consider when choosing between super or mortgage

So, how do you decide between mortgage and superannuation?

As we’ve mentioned, it’s not necessarily that simple and there is no one-size-fits-all answer to this question. While we have laid out the pros and cons for choosing either, there are other factors that should be taken into account when deciding. 

When you are trying to figure out what is the best option for you, here are some of the issues to consider.

1. Your age

Paying off your home loan in earlier years can allow you to make super contributions in life. It’s also the most popular route that most Aussies take when deciding whether to top up their super or their mortgage. 

Your surplus cash flow when mortgage payments are reduced and when your income may have increased will also boost your super contributions. 

Additionally, experts say that younger people are more likely to have increased expenditures over the years and may not want their money to be locked in their super. Meanwhile, older people tend to be in a better financial position to have the surplus money to boost their super ahead of retirement. 

2. Consider the size of your mortgage and how long you have left to pay it off

A dollar put into your mortgage at the start of a 30-year term will have a more significant effect on the amount interest paid than a dollar put in at the end. Generally, people are advised to focus on reducing their mortgage particularly in the first few years.   

When you first take out a loan, interest represents a larger proportion of your repayment than principal. So, the more you pay off earlier, the less interest you’ll pay over the long term.

3. Cash rate

The prevailing interest rate set by the Reserve Bank of Australia (RBA) should be taken into consideration when deciding whether to top up your super or finish paying your home loan. 

In the current low interest rate environment, the rate on mortgages is at around 3.5 per cent, significantly lower than a few years ago, when rates were near 7 per cent. 

This means that many home owners, particularly those who bought some time ago on a variable rate, will now be paying much less each month for their home. You’ll likely be paying less each month on your mortgage, which can free up funds for other investments or commitments. This makes paying off your mortgage an attractive option. 

But it’s also beneficial to invest in your super amid the low interest rate conditions. 

Due to the reduced interest rate cost, the ‘hurdle rate’ of investing (on an after-tax basis), has also been lowered. This makes super a much more attractive option, as over the long term there is a good chance that your super will reach a rate of after tax return that is greater than 3.5 per cent.

4. Your personal preference

Sometimes, the decision all boils down to your personal comfort zone.  

For many people, owning a home is a top priority. And paying off your mortgage on your property as fast as possible may seem like a generally sound financial decision.

Conventional wisdom used to dictate that Aussies were better off paying down their home loans and, once debt-free, turning their attention to building up their super. If you choose to make additional repayments (whether in the form of a lump sum or higher monthly payments) on your mortgage, you can save money on interest rates and lower the number of years needed to repay your loan. 

On one hand, while it’s tempting to pay off your mortgage as quickly as possible, your super balance is important if you want to have a comfortable retirement.

If you choose to top up your super fund, you will have more money in retirement and have more freedom to live the lifestyle you want post-work life. And with interest rates at record lows and many super funds potentially offering a higher rate of return, choosing your super may be a more practical way to go. 

Mortgage v super: Which should I prioritise?
Mortgage v super: Which should I prioritise?
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