Which should come first, mortgage or super?
Paying off your home loan signals an important landmark in your financial life. However, it is always important to consider alternative investment strategies. Sometimes the best strategy may not be the most obvious.
What you need to know
Most people still believe that they are better off putting surplus money into their mortgage before investing elsewhere. However depending on your circumstances it may be more beneficial to salary sacrifice to your super rather than make additional payments to your mortgage.
Salary sacrifice allows you to make contributions to your super directly from your pre-tax pay. You do not pay income tax on salary sacrifice contributions which may be can represent a significant tax saving compared to the concessional superannuation fund tax rate of 15%, particularly if you are on the highest marginal tax rate. And when you pay less tax, you have more money to invest which gives you the potential to increase your returns.
Both the mortgage interest rate and earning rate within super are important variables to consider in any comparison between reducing debt and making before tax super contributions. It is important to be aware of how the outcome would change if the mortgage interest rate and/or the earning rate within super changed.