Super vs Mortgage: Where Should Extra Money Go?

You've got $500 extra each month. Do you salary sacrifice it into super, or make additional mortgage repayments? This is one of the most common financial questions Australians face — and the answer depends on your age, tax bracket, and how much you value flexibility.

The Case for Extra Super

Salary sacrifice contributions are taxed at just 15% inside super, compared to your marginal tax rate of 30-37% on regular income. For someone earning $100,000, every $1,000 salary sacrificed saves up to $220 in tax — the full $1,000 goes into super but only costs you $780 in take-home pay.

Inside super, investment returns are taxed at just 15% (and 0% in retirement phase). Outside super, you'd pay your marginal rate on investment income. Over 20-30 years, this tax advantage compounds significantly.

The numbers: $500/month into super from age 35, earning 7% after fees, grows to approximately $490,000 by age 65. The same $500 in a taxable investment account at the same return grows to roughly $380,000 after tax on earnings.

The Case for Extra Mortgage Repayments

Every dollar of extra mortgage repayment saves you the full interest rate — currently around 6-7%. This is a guaranteed, risk-free, tax-free return. No investment can promise that.

$500/month extra on a $500,000 mortgage at 6.5% saves approximately $180,000 in interest and pays off the loan 8 years early. That's money you never have to earn, get taxed on, or worry about market crashes affecting.

There's also a psychological benefit: being mortgage-free gives you enormous flexibility. You can take career risks, work part-time, or retire earlier when you don't have a $3,000/month mortgage hanging over you.

When Super Wins

Super generally wins when you're in a higher tax bracket (37%+), you're under 50 (more time to compound), your mortgage rate is relatively low, and you haven't hit the $30,000 concessional cap yet. The tax arbitrage — paying 15% instead of 37-45% — is hard to beat mathematically.

When Mortgage Wins

The mortgage wins when interest rates are high (6%+), you're in a lower tax bracket (the super tax advantage is smaller), you're over 50 (less time for super to compound), or you value the flexibility and security of being debt-free. It also wins if you're on a fixed rate loan with limited extra repayment allowances — in that case, super is the only option.

The Compromise: Do Both

Many financial advisers recommend a blended approach. Use salary sacrifice to get the tax benefit up to a comfortable level, then put anything beyond that into the mortgage. For example, salary sacrifice $200/month and put $300 extra into the mortgage.

Another strategy: focus on the mortgage while rates are high (which gives you a guaranteed 6-7% return), then shift to super when rates drop (and your guaranteed return from mortgage repayments falls below what super can earn).

The Bottom Line

If you're under 45 and in the 30%+ tax bracket, super usually wins on pure maths. If you're over 50, rates are high, or you want security, the mortgage wins on flexibility. Either way, putting that extra $500 somewhere productive — rather than spending it — is the real win.