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Is it better to put your money into super or a mortgage?


Laine Gordon

By Laine Gordon

3 min read

Preparing for your future requires a diligent approach to budgeting and saving. But it's not always as straightforward as tossing money into a savings account each week — you need to think about the best savings strategy for your needs.

It's a good idea to spread your investments, from a short-term savings account to a long-term superannuation fund. If you take out a home loan to purchase a property, you'll grow your equity over time. Some Aussies even invest in shares.

It's a good idea to have a diversified savings strategy, but sometimes you might be wondering about what to do here and now. You might have a few thousand dollars in your transaction or savings account that you think could have better earning potential elsewhere. But just where do you put it?

The mortgage vs superannuation debate

For many homeowners, it's desirable to knock down their mortgage balances. In such a case, some extra cash could go towards this. In other instances, the relief of lowering your home loan is outweighed by the desire to contribute a little extra to your superannuation fund.

You'll need to get a grip around home loan and superannuation rules to establish which options are applicable in your circumstances. There are some other factors to consider, as well.

Should you put money towards your home loan?

Home equity is the value of an asset, minus any money that's owed on it. If your home is worth $500,000 and you've got a loan balance of $200,000, your equity is $300,000. So the more money you contribute to your home loan, the more equity you have. In this sense, paying off your loan might seem like a sensible option, as you're actually building up your interest in an appreciable asset.

You can also use your home equity to take out a line of credit, enabling you to complete home renovations and increase the value of your home. This could lead to successful results if you choose to sell your property in future months or years.

The case for superannuation

Of course, there are plenty of reasons why you might instead turn to your superannuation fund when it comes to contributing cash.

For starters, this might be your only option: Many home loan products have restrictions on making extra repayments, particularly fixed-rate mortgages. Check whether you can make additional payments before throwing down the cash.

You can make extra contributions before and after tax. If you do a salary sacrifice, you'll only pay 15 percent tax on your contribution. The higher your income, the more tax you'll pay — certainly well over this rate. Accordingly, there's a significant tax benefit to making additional payments into your super fund, really making the most of your money.

One of the most precious commodities you have is time. If you're able to put more money into your superannuation account now, on top of your employer contributions, it could grow to ensure you're covered for the future.

ASIC's Money Smart website has a handy Super vs Mortgage calculator that will help you crunch the numbers. 

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