With ongoing interest rate cuts over the last three years, and proposed changes to the Superannuation laws, it can be difficult to know whether your savings should be put towards paying off your mortgage or building your Super balance. Read on to find out more and calculate your options with the ASIC Super v s Mortgage Calculator.

If you have additional savings, you want to be able to make the most of them in the long term.

One of the most asked questions we face from our younger clients is whether to use extra savings to pay off the mortgage or make contributions to Super. The answer is – it depends.

We have highlighted some of the pros and cons of each possibility to help you better understand the various options and implications of using your excess funds to pay off your mortgage or contribute to Super. It is always important to seek professional advice. We’re here to help. Well qualified advice and sharing our insights and experience will prepare you for making the best possible decisions for your circumstances. Please give us a call, to talk through your options.

Paying off your mortgage

Pros

Pay it off sooner: With interest rates decreasing over the last three years, restructuring your mortgage or switching to an alternative mortgage provider offering a lower interest rate may enable you to pay off your mortgage sooner based on the same monthly payments.
Redraw Funds: You may be able to access funds via a redraw facility if you are facing financial difficulty.
Less fluctuation: Mortgage rates are less likely to fluctuate when compared with Super returns.
Less interest paid: Making additional repayments will reduce your interest expense.

Cons

Extra Fees: It’s important to know if you are allowed to make extra repayments on your loan, or if they charge a fee for extra payment or early payout.

Contributing to Super
If the decision is made to make additional contributions to Super, it is vitally important to take the time to also assess whether the fund you are contributing in to is right for you. Many factors such as investment choice, fees, performance, insurance etc need to be considered. Please contact our office for a comprehensive review of your superannuation fund options.

Pros

Superannuation is one of the most tax-effective schemes available with contributions and earnings generally taxed at just 15%. Salary sacrifice can be a method to save tax if your marginal tax rate is more than 15%.
Some Superannuation funds allow the option to change your Super fund’s investment options to suit your savings goals and needs.
Make the most of compound interest on your additional Super contributions.

Cons

If you contribute additional saving to Super contributions, you will not be able to access these funds until you meet a condition of release, usually retirement.
Income earners with an income of over $250,000 are taxed at 30% for contributions to Super.
If Superannuation caps are exceeded, penalties apply. Excess contributions are taxed at your marginal tax rate and you may also need to pay an excess concessional contributions charge.

Calculate your options for contributing additional funds to Super or for paying down your mortgage using the ASIC Super vs Home Loan Calculator:

There are many factors that need to be taken into account when considering what is best for your circumstances and as you move throughout different stages of your life, your circumstances and priorities change and certain financial planning strategies are more appropriate.

If you would like to know more about debt management and wealth creation strategies for your circumstances, please contact us on (07) 3720 1299 or email admin@wealthfundamentals.com.au

Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances.

This publication cannot be reproduced in any form without the express written consent of the author.