Concessional Super Contributions vs Mortgage Paydown: What’s the Smarter Move?
If you have extra cash on hand, you might be torn between putting it into your super or paying off your mortgage—whether on your home or a holiday property. Both options can be financially rewarding, but the right choice depends on your goals, age, and tax position. This guide breaks down each option to help you make a more informed decision.
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Paying Off Your Mortgage: A Safe, Steady Strategy
Paying down your mortgage directly reduces non-deductible debt—debt where the interest isn’t tax-deductible. For many Australians, especially those seeking financial peace of mind or preparing for retirement, this option feels secure and low-risk.
Why it might be smart:
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Guaranteed return: Paying an extra $10,000 on a 5% mortgage saves $500 annually—like earning a risk-free 5% return.
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Builds equity: Reducing your loan balance increases your financial flexibility.
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Lower repayments: With a smaller loan, minimum repayments shrink, improving your cash flow.
The main drawback is that mortgage repayments offer no immediate tax relief—unlike super contributions, which may provide upfront tax savings (More reading: Paying off your mortgage faster).
Concessional Super Contributions: A Tax-Effective Growth Tool
Concessional super contributions in Australia—such as salary sacrifice or personal deductible contributions—are taxed at just 15%, potentially saving you thousands in tax each year. This can be a compelling option if you’re nearing retirement and want to maximise your retirement balance.
Why it might be smart:
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Tax savings: If you’re on a 39% marginal tax rate, each $16,390 concessional contribution could save you $6,390 in tax.
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Compound growth: Super funds grow over time, and earnings are taxed at a low 15%, helping to grow wealth faster than many mortgage interest rates.
The catch? Your money is locked away until you reach your preservation age (usually 60), so it may not suit those who value access and flexibility in the short term (Further reading: How super contributions work – Moneysmart).
Case Study: Brian’s Dilemma
Brian is 55, has a mortgage on his holiday house with a 5.6% interest rate, and earns enough to be in the 39% tax bracket. Each year, he has $10,000 of after-tax surplus cash.
Option 1 – Pay down mortgage:
If Brian pays an extra $10,000 off his mortgage annually for five years, he will reduce his loan by approximately $56,000—including the interest saved.
Option 2 – Contribute to super:
Instead of paying off his mortgage, Brian makes a $16,390 personal deductible contribution to super each year. After 15% contributions tax, $13,930 is invested annually. Assuming 5.6% net growth, he ends up with about $78,000 more in super after five years. At age 60 and retired, he can access the funds tax-free and use them to pay off remaining debt.
The Verdict: What’s the Smarter Move?
There’s no universal answer to the concessional super contributions vs mortgage paydown in Australia debate. If you prioritise certainty, flexibility, and peace of mind, paying off your mortgage may appeal. If you want to maximise tax benefits and retirement savings, concessional contributions could come out ahead—especially if you’re close to retirement.
Let’s talk through your goals, risk appetite, and timeframe to tailor a strategy that works for you.
WL Advisory is a Chartered Accounting firm. We specialise in accounting, tax, and advisory services for individuals and small businesses. Please visit our website for more information.