Mortgage vs Super: Where Should Your Spare $10,000 Go?

01 The two returns aren't the same kind of thing

Two things happen to a spare $10,000 depending on where it goes, and they are not the same kind of thing.

Put it on the mortgage and you get a certain, immediate, tax-free return equal to your interest rate, for as long as the loan runs. Put it into super via salary sacrifice and you get a certain, immediate tax saving of the gap between your marginal rate and 15%, plus an uncertain market return on a larger starting amount, locked until 60.

Both are good. Neither is obviously better in the abstract, which is why this question generates so much confident and contradictory advice — the answer genuinely depends on your interest rate, your marginal rate, and when you might need the money.

What the rest of this works through is how to decide it with your own numbers rather than someone else's, and why for most households the answer is a split rather than a winner.

An extra dollar off your home loan earns a guaranteed, tax-free return equal to your interest rate. Cass's loan is 6.1%, so every extra dollar she repays saves 6.1% in interest she'd otherwise pay — and because it's her own home, there's no tax on that saving. That's genuinely hard to beat on a risk-adjusted basis: it's certain, and it's after-tax.

Super is a different animal. A balanced fund might average 6–7% a year over decades, but it's not guaranteed, it bounces around, and the earnings inside super are taxed (15% in accumulation, nil in pension phase after 60). Comparing "6.1% guaranteed and tax-free" against "maybe 7% and taxed" head-to-head, the mortgage often looks like the safer winner. That comparison is incomplete — it leaves out the contribution tax break, which happens before any return at all.

Source: ASIC Moneysmart — Super contributions

02 The 15% tax break is the whole game

The offset account is the piece that makes this decision less binary than it looks, and it is frequently misunderstood.

Money in an offset reduces the balance your interest is calculated on without being applied to the loan. So it earns your mortgage rate — guaranteed, tax-free — while remaining fully available to withdraw. For money you might need, that strictly dominates an extra repayment, which is locked into the house unless the lender permits redraw and you are willing to ask.

Which reframes the whole comparison. It is not really mortgage against super; it is offset against super, with the offset keeping the flexibility that super gives up. Once the emergency buffer is in the offset and earning the mortgage rate, the remaining question is only what to do with money you are confident you will not touch before 60 — and that question has a clearer answer.

Check the offset is a genuine 100% offset against the loan rather than a partial one or a separate savings product with an offset-like name, because the difference materially changes the return.

Salary sacrifice wins because the money goes in before income tax, taxed at 15% inside super instead of your marginal rate. Cass is on the 37% bracket; with the 2% Medicare levy that's 39% on her next dollar. If she takes $10,000 as take-home pay to throw at the mortgage, she first loses $3,900 in tax — only $6,100 reaches the loan. If she salary-sacrifices the same $10,000, it's taxed at 15% — $1,500 — and $8,500 lands in super. She's put $2,400 more to work, on day one, before a cent of investment return.

That head start is why the contribution tax break, not the return assumption, usually decides this. The catch is the concessional cap: $30,000 for 2024-25, and that already includes her employer's 11.5% Super Guarantee. On $145,000 her SG is about $16,675, leaving roughly $13,300 of cap for salary sacrifice — comfortably more than her $10,000, so she's fine.

Above $250,000 income, halve the benefit. Division 293 charges an extra 15% on concessional contributions, so the saving drops from ~24c to ~9c per dollar — still positive, but no longer the landslide.

Source: ATO — Concessional contributions cap

03 Worked example: Cass's spare $10,000

Three numbers decide this, and you can look all three up in about ten minutes.

Your mortgage interest rate is the guaranteed return on an extra repayment. Your marginal tax rate, including the 2% Medicare levy, determines what a salary-sacrificed dollar saves — the gap between that rate and 15%. And your remaining concessional cap, which is $30,000 less whatever your employer will contribute this year, sets how much of the super option is even available.

Run them together rather than separately. At a 6% mortgage rate and a 39% marginal rate, super's 24-cent entry saving is worth more than one year of mortgage interest on the same dollar — but the mortgage saving repeats every year until the loan ends, while the entry saving happens once. Over a long enough horizon super wins on the earnings tax as well; over a short one the mortgage wins on certainty.

The horizon is the third number, and it is the one people leave out. Ten years from paying the loan off and twenty-five years from 60 is a very different position from three years from each, and the same interest rate and tax rate produce opposite answers in those two cases.

On the defaults above, the worked example returns $28,800. Super ends ahead by $4,500 — but it's locked until 60.

How the comparison resolves

Source: ATO — Salary sacrificing super

04 The preservation-age trap

The comparison is not between a mortgage rate and an investment return; it is between a mortgage rate and the whole of what a super contribution delivers.

Every extra dollar on the mortgage saves your interest rate, guaranteed, tax-free. At 6% that is a 6% return with no risk attached and no tax on it — which for a 39% marginal earner is equivalent to earning about 9.8% gross in a taxable account. That is a genuinely strong return and the reason this decision is closer than the "super is tax-advantaged" framing suggests.

Against that, a salary-sacrificed dollar enters super having been taxed at 15% instead of 39%, so $1 of pre-tax income becomes 85 cents inside super against 61 cents in your hand. Before any investment return, super starts 39% ahead on the same pre-tax dollar. The long-run market return then compounds on the larger amount, lightly taxed.

The offset account deserves its own mention because it does something neither of the others does: it earns your mortgage rate while remaining fully accessible. For money you might need, it is strictly better than an extra repayment, which is locked into the house unless you redraw.

Which is why the honest answer is usually a split determined by your interest rate, your marginal rate and how likely you are to need the money before 60 — not a winner.

Super only wins if you don't need the money before 60. Cass is 46; that's 14 years she can't touch a dollar of any salary sacrifice except in narrow hardship cases. If her studio hit a bad year, or she wanted to take six months off, or a health event landed, the mortgage-side money is reachable (through redraw or an offset) and the super-side money is not. That optionality has real value she'd be giving up.

This is where the decision turns on the person, not the math. A salaried employee with stable income and a fully-funded emergency buffer can lock money away with confidence. A self-employed person with lumpy income — like Cass — should keep more powder dry. The 15% tax break is worth a lot; it isn't worth being unable to pay yourself in a lean quarter.

Source: ATO — When you can access your super

05 The offset account: the answer most people should use first

The arithmetic answers the question of expected value. It does not answer which choice you will actually stick with, and that turns out to matter more than a percentage point either way.

A paid-off home lowers the income you need in retirement permanently, removes the largest fixed cost in most household budgets, and makes a period of illness or unemployment survivable rather than urgent. It is also the clearest way to reduce the assessable assets the Age Pension tests, since the home is exempt. Those are real financial effects even though none of them appears as a return.

Super's advantages are equally real and arrive differently: the 15% entry rate is banked immediately, the earnings tax is lower every year, and after 60 the whole thing can move into a tax-free pension. But it is unreachable until then, and that is not a small caveat for someone in their forties.

There is also a behavioural asymmetry worth naming. Someone who overpaid the mortgage and later wishes they had contributed to super has a smaller balance and no debt. Someone who contributed to super through a decade of poor returns while carrying a mortgage they resent is far more likely to abandon the strategy at the worst possible moment — which converts a modest underperformance into a realised one.

The plan you will still be following in eight years beats the marginally better one you will not.

An offset account gives the mortgage return without giving up access, which is why it's the right first move for most people who aren't sure. Money in an offset reduces the balance the bank charges interest on, so $10,000 in offset against a 6.1% loan saves the same 6.1% — tax-free — as an extra repayment, but you can withdraw it any time. You get the guaranteed return and keep the optionality.

For Cass, the sequence I suggested was: build the offset to a comfortable buffer first, then, once that's solid and her income's been steady, start directing the $10,000 a year to salary sacrifice to capture the 15% break for the long run. Offset for flexibility now; super for the tax break once the safety net is real.

06 When the interest rate flips the answer

For most households the sequence matters more than the split, and it is the same sequence regardless of the interest rate.

Clear high-interest debt first, because a card at 20% beats both options by a margin nothing else approaches. Build an emergency buffer next, ideally in the offset where it earns the mortgage rate while staying available. Then capture any employer contribution above the statutory minimum, if your employer offers one.

Only then does the mortgage-versus-super question actually arise, and by that point it is a comparison between two good options rather than a decision with a wrong answer.

Revisit it when the interest rate changes materially, because the answer genuinely moves. At 3% the case for super is strong; at 7% the guaranteed tax-free return on the mortgage is difficult to beat. A fixed-rate period ending is the natural moment to rerun the numbers rather than continuing whatever was set up five years earlier.

And keep the timeframe test in front of everything: money you might need before 60 does not belong in super at any interest rate, and money you certainly will not need before 60 is being handled inefficiently if it is sitting in the offset for a decade.

The mortgage side of this decision moves with your interest rate, and that changes the verdict more than people expect. Paying down a 6.1% loan is a guaranteed, tax-free 6.1% return — and to a higher-rate taxpayer that's worth far more than 6.1% from an investment, because the investment return would be taxed. For Cass on the 39% marginal rate, beating a 6.1% mortgage with a taxable investment means earning roughly 10% before tax just to break even. Super changes that comparison because of its low 15% environment, but the higher your loan rate, the harder the mortgage is to beat.

The practical rule: the higher your mortgage rate, the stronger the case for the loan (or offset); the lower the rate, the stronger the case for super's tax break. When Cass fixed part of her loan at 6.1%, extra repayments became a near-unbeatable guaranteed return; if her rate were 3%, the maths would swing decisively back to salary sacrifice. Re-run the decision whenever your rate resets — it's not a once-and-done choice.

Source: ASIC Moneysmart — Extra home loan repayments