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.
From the experts
When considering any super strategy, it's important to assess how much you are contributing to super in any one year. The government has set annual limits – known as contributions caps. Contributions over these caps are taxed at a hefty rate.
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 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 can represent a significant tax saving 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.
An adviser can help you:
- Work out the most effective strategy for you
- Boost your super using smart super strategies