Many individuals are faced with the dilemma of deciding where to allocate their extra savings. Should they direct the funds towards their mortgage or contribute to their superannuation? This decision is not one-size-fits-all and depends on various factors unique to each individual’s financial situation. In this article, we will explore the advantages and considerations of paying extra off the mortgage versus making additional contributions to superannuation.


Paying extra off the mortgage

For most people, prioritising extra mortgage repayments is a sensible choice. By making additional repayments, individuals can reduce the interest payable on their loan and accelerate the loan payoff, ultimately freeing themselves from mortgage repayment commitments. Moreover, if the home loan offers a redraw or offset facility, individuals can still access their funds if their circumstances change. However, it’s important to note that paying extra off the mortgage requires after-tax money, which is less advantageous compared to using pre-tax income to invest in superannuation, potentially leading to paying off the mortgage sooner.


Paying extra into superannuation

Contributing extra funds to superannuation usually involves using pre-tax money through salary sacrifice contributions. Salary sacrifice entails an agreement where employees agree to forego a portion of their future salary or wages in exchange for similar-value benefits, such as increased employer superannuation contributions. Since salary sacrifice contributions are made with pre-tax dollars and do not form part of the individual’s assessable income, they are taxed at a maximum rate of 15% when received by the superannuation fund.

It’s worth noting that pre-tax contributions, including salary sacrifice contributions, count towards the concessional contribution (CC) cap, which is currently $27,500 per year in 2023/24 (or $30,000 in 2024/25). As employer superannuation guarantee (SG) contributions also contribute to this cap, individuals must determine their remaining cap space before starting to salary sacrifice. Additionally, eligible individuals may utilise the carry forward concessional contribution rules to make larger CCs.

Once the money is within superannuation, it is invested and has the potential to grow due to compounding returns. The tax advantages of superannuation, along with the power of compounding, mean that even small contributions can significantly boost retirement savings. When the time is right, individuals can choose to withdraw a tax-free lump sum to clear their remaining mortgage or commence a superannuation pension, drawing tax-free pension payments to meet mortgage repayments from the age of 60 onwards.


Example – Pre vs Post-tax money

To illustrate the difference between pre-tax and post-tax contributions, let’s consider Bill, who earns $150,000 per year and has a monthly savings capacity of $1,000 – $1,500. Bill has two options:

  1. Direct the amount to his mortgage.
  2. Salary sacrifice $1,587 into superannuation, where the after-tax cost is $1,000.
    Bill chooses to salary sacrifice to superannuation. The contribution is taxed at 15% upon receipt by the fund, resulting in an end contribution of $1,349. By opting for salary sacrifice, Bill’s superannuation fund receives an additional $349 each month, all while maintaining the same out-of-pocket cost to Bill.


This example demonstrates the benefit of salary sacrifice contributions, as the difference between Bill’s marginal tax rate (37%) and the contributions’ tax rate (15%) translates into savings. However, it’s crucial for Bill to ensure that he doesn’t exceed his CC cap by making additional salary sacrifice contributions to superannuation.



Choosing between directing extra cash towards a mortgage or superannuation depends on several factors, including mortgage interest rate, income, marginal tax rate, superannuation investment strategy, and age to retirement. It’s prudent to seek additional information or consult a financial advisor before making any financial decisions regarding mortgages or superannuation. They can provide personalised advice based on your specific circumstances, helping you make an informed choice to optimise your financial goals.

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