Many Australians who find themselves with extra funds face a big question: Is it better to put money in super or mortgage? It often boils down to the mortgage vs super debate, asking where you should put your spare cash for the best long-term gain. There’s no single right answer; picking between super or mortgage depends on your current situation, what you want to achieve financially, and where you are in life. Today, we’ll help you weigh your options by exploring some key points.
What Are Your Financial Goals?
Before anything else, you have to be clear about what you’re trying to achieve. Do you dream of owning your home outright as quickly as possible, or is building a bigger nest egg for retirement your top priority? Your short and long-term aims directly shape whether you should pay off your mortgage or invest more in your super. If you don’t know where you’re going, it’s tough to pick the right road.
The Case for Superannuation
Topping up your superannuation account can be a powerful move. After all, doing so has tax advantages. However, like any financial move, it has some drawbacks.
Why Consider Superannuation?
Tax Benefits & More
Superannuation is purpose-built as a highly tax-efficient way to save for retirement. Money that goes into your super as concessional (before-tax) contributions—like what your employer pays or if you salary sacrifice—is generally taxed at just 15%. For many people, this is a lot less than their income tax rate, giving them an immediate tax win. What your super earns inside the fund also gets a low tax rate, topping out at 15%, with capital gains sometimes as low as 10%. Once you hit 60 and meet certain conditions (like retiring), taking money out as a lump sum or pension is often completely tax-free.
Compounding Growth
Investing in super is a long game, and the benefits of compounding are real. Even small, regular top-ups over many years can balloon into a significant sum. The more time your money has in the fund, the more it can grow, turning modest payments into serious retirement wealth.
Things to Keep in Mind with Superannuation
While putting your spare cash in your super is appealing, it comes with rules. There are contribution caps or limits on how much you can put in each financial year. Plus, once money is in super, it’s generally ‘preserved.’ This means you usually can’t touch it until you reach your preservation age and meet a condition of release, which is typically retirement. This rule ensures your super is indeed for your golden years, but it also means you can’t use those supposed extra funds for immediate needs.
The Case for Your Mortgage
On the flip side, directing extra money straight into your home loan offers concrete, often immediate benefits.
Why Pay Down Your Mortgage?
Slash Debt and Save Interest
Pushing extra cash into your mortgage directly cuts down the total interest you’ll pay over the loan’s life. This is like a guaranteed “return” equal to your home loan interest rate—money you simply won’t have to part with. Reaching that huge goal of being completely debt-free earlier brings peace of mind, wiping out a major recurring bill from your budget. Plus, paying off your mortgage faster can open up opportunities to go after other financial objectives and eventually attain financial freedom.
Flexibility and Access
Many mortgages come with handy features like redraw facilities or offset accounts. These let you tap into any extra payments you’ve made, creating a valuable backup fund for emergencies or big future costs should life throw you a curveball.
Key Factors When Deciding Between a Mortgage and a Super
The question, “Is it better to put money in a super or mortgage?” has many layers. Here are the main things to think about:
- Your Age and Timeline: If retirement is decades away (say you’re a millennial), super’s compounding power might be more attractive. If you’re close to retiring, getting rid of your mortgage could be a bigger priority so you can enter retirement debt-free.
- Interest Rates vs. Investment Returns: Compare your current mortgage rate with what your super fund has returned historically and what it might return. Saving on mortgage interest is a sure thing, but super returns can swing with the market.
- How You Feel About Risk: Reducing debt gives you guaranteed savings and lowers your financial risk. Investing in super, while it might offer higher returns, comes with market risks.
- Need for Accessible Money: Think about whether you might need quick access to extra funds. Mortgage redraw or offset accounts offer flexibility that preserved super funds don’t.
- Whether You Have Other Debts: Before throwing big chunks of cash at your mortgage, it’s often smart to wipe out any higher-interest, non-tax-deductible debts first, like credit card balances or personal loans. These usually carry much steeper interest rates, making paying them off a more impactful first step before you focus intensely on mortgage or superannuation.
- Your Whole Financial Picture: Look at your emergency fund, any other debts you have (especially high-interest ones), and your future money commitments. This helps you decide if it is better to put extra money in your super or mortgage when juggling other money priorities.
The Hybrid Approach: A Mix of Both Super and Mortgage
Sometimes, the best path isn’t picking one over the other, but finding a smart mix. This could mean making some extra payments on your mortgage while also topping up your super (maybe through salary sacrifice or personal contributions). This way, you chip away at your debt while still using super’s tax benefits and long-term growth potential. Finding this balance really depends on what you’re comfortable with and what matters most financially.
Final Thoughts
Both sides of the mortgage vs super coin have strong arguments. Ultimately, the choice to pay off a mortgage or top up your super is deeply personal. It’s tied to your unique situation, how much risk you’re okay with, and your financial dreams.
We always encourage making well-thought-out decisions. It’s smart to regularly check in on your financial situation and adjust your plan as your life and goals change. That’s why getting professional financial advice is highly recommended.
Our team at The Harmony Group has over 15 years of industry experience helping people just like you navigate complex investment choices. We can help you weigh your options against your specific circumstances and long-term goals.
Don’t hesitate to contact us today for an initial consultation.
