Extra Into Super or Mortgage? Which Saves You More in 2026
Should you put extra money into super or pay down your mortgage faster? We run the actual numbers for 2026 interest rates and tax brackets to help you decide.
The tax advantage of putting extra into super
Extra concessional contributions to super are taxed at 15% instead of your marginal rate. If you earn $100,000, every dollar you salary sacrifice into super is taxed at 15% inside the fund instead of 32.5% (plus 2% Medicare levy) in your hands. That means for every $100 you redirect to super, you save $19.50 in tax — the money goes further simply because of the tax treatment. Over 20 years, assuming super fund returns of 7% per year after fees, an extra $10,000 contributed today grows to approximately $38,700 inside super. The tax advantages compound because investment earnings inside super are also taxed at just 15% (and zero in retirement phase). However, this money is locked away until you reach preservation age, typically 60. The tax benefit is most powerful for higher-income earners: someone on $190,000 saves 32 cents per dollar contributed (47% marginal rate minus 15% super tax), while someone on $60,000 saves only 19.5 cents per dollar (34.5% minus 15%).
The guaranteed return of extra mortgage repayments
Extra mortgage repayments offer a guaranteed, risk-free return equal to your home loan interest rate. At current variable rates of approximately 6.0–6.5%, every extra dollar paid off your mortgage saves you 6.0–6.5 cents per year in interest, compounding over the remaining loan term. This return is also tax-free for owner-occupiers (you do not pay tax on interest you did not incur). At a marginal tax rate of 32.5%, a tax-free 6.2% return is equivalent to a pre-tax return of approximately 9.2% — meaning your mortgage repayments would need to be compared to a super fund earning 9.2% before fees and tax to be equivalent. On a $500,000 mortgage at 6.2% with 25 years remaining, an extra $500 per month in repayments saves approximately $195,000 in interest and pays the loan off 7 years early. This is a guaranteed outcome, unlike super returns which fluctuate with markets.
Worked example at $100,000 salary with $500,000 mortgage
Let us compare two scenarios for someone earning $100,000 with $500 per month of extra capacity. Scenario A — Extra into super: $500/month salary sacrificed. Tax saving: $500 is taxed at 15% ($75) instead of 34.5% ($172.50), saving $97.50/month. Net contribution to super: $425/month ($5,100/year). After 20 years at 7% return: approximately $263,000 additional super balance. Scenario B — Extra onto mortgage: $500/month additional repayment on a $500,000 loan at 6.2%. Total interest saved: approximately $155,000. Loan paid off 6.5 years early. After mortgage is paid off, redirecting the entire monthly repayment ($3,300) to investments for the remaining years adds substantial wealth. The comparison depends critically on your time horizon, risk tolerance, and existing super balance. For most people under 45, super contributions win on pure numbers due to the tax advantage and long compounding period. For those closer to retirement with a large mortgage balance, paying off the mortgage first provides certainty.
The age-based decision framework
Your age significantly influences which option is better. In your 20s-30s: super contributions have 30–40 years to compound, making the tax advantage extremely powerful. Even modest extra contributions now dwarf larger contributions made later. Prioritise super unless your mortgage rate exceeds 7% and you have no debt buffer. In your 40s: this is the tightrope decade. Balance both — split extra money 50/50 between super and mortgage to reduce both your retirement shortfall and your interest costs. Focus on maxing out carry-forward concessional caps from previous years if available. In your 50s: clearing the mortgage before retirement becomes the priority, because entering retirement without housing costs dramatically reduces the super balance you need. ASFA estimates a comfortable retirement for a couple costs $72,148 per year — but $18,000–$25,000 of that is housing costs that disappear once the mortgage is paid off. In your 60s: super contributions still attract tax benefits, and the transition-to-retirement strategy allows you to draw a super pension while still working.
The case for doing both: the split strategy
For most Australians, the optimal approach is not either/or but a thoughtful split. A practical framework: first, ensure your employer is paying the full 12% Super Guarantee. Second, make extra mortgage repayments up to the amount that maintains a 3–6 month buffer in your offset account (or redraw). Third, salary sacrifice into super up to the point where the tax saving is meaningful — typically $5,000–$15,000 per year depending on income. Fourth, use any remaining surplus for additional mortgage repayments. The split strategy captures the tax benefit of super contributions while steadily reducing your mortgage, giving you both long-term wealth building and medium-term debt reduction. If interest rates fall significantly (below 4%), the case for prioritising super strengthens because the guaranteed mortgage return drops. If super fund returns have been poor (below 5% over 3 years), the case for mortgage repayments strengthens because the guaranteed mortgage return becomes relatively more attractive.
Investment property owners: the different calculation
If your mortgage is on an investment property rather than your home, the calculation changes substantially. Investment property mortgage interest is tax-deductible, which means paying off the loan faster actually increases your tax bill by reducing your deduction. On a $500,000 investment loan at 6.2%, the annual interest is approximately $31,000 — at a 32.5% marginal rate, that deduction saves $10,075 in tax per year. Paying down the loan reduces this deduction, effectively making the after-tax cost of the debt only 4.2% (6.2% minus the 32.5% tax saving). At an after-tax debt cost of 4.2%, extra super contributions (with their 15% tax rate advantage) almost always win. The optimal strategy for investment property owners is usually: maintain the investment loan at its current balance (interest only if possible), maximise concessional super contributions to the $30,000 cap, and keep surplus cash in your home loan offset account if you also have an owner-occupied mortgage. Pay off non-deductible debt before deductible debt — this is a fundamental principle of Australian tax planning.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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