Should I repay my home loan or boost my super?

Both options make good financial sense—we look at some pros and cons to help you decide.

Retirement may not be as far off as it used to be. With this in mind, are you finding there’s a trade-off between home loan repayments and your retirement nest egg?

Adding money to super has its advantages and so does paying off your home loan. So if you’ve got some extra cash, how do you choose between the two? Or maybe you can do both.

Let’s consider the pros and cons of each, along with factors like your age, personal goals and income to help decide what’s best for you.

Your age and retirement goals

If you put extra into super—depending on your age—you may have to wait a while before accessing it, which may not suit your goals. But on the upside, if you retire in 15 years you’ll benefit from compound interest and dollar-cost averaging, which are two powerful ways to build long-term wealth. Use our dollar-cost averaging calculator to see how regular contributions build up over time.

Repaying your home loan will reduce the overall amount owing, which means your interest will go down—and you’ll have a valuable asset that can provide comfort and security in retirement. Check out the home and retirement planner to see how your home fits in with your plans.

Your income and tax

When it comes to tax benefits, super may be the clear winner—generally you have to use after-tax dollars to repay a home loan.

In super you can contribute pre-tax dollars. That means more in your hand down the track, with minimal impact on your take-home pay:

  1. Less tax is applied to the portion of income going into super (15% ) so you’re lowering your overall tax bill each year, and 
  2. You may reduce your taxable income (by making a super contribution, before tax is applied) and attract a lower tax rate. Learn more about the different types of super contributions.

Use our salary sacrifice calculator to find out how this would work for you.

Bear in mind that when you sell your home any profit is tax free. In super, your money is also tax free, but only after you turn 60 and providing you receive your super as an income.

Saving has its limits

Even though super is a tax-effective way to build wealth, you may not be able to add as much as you’d like—depending on the amount your employer contributes. Visit the ATO website to find out more about contributions limits.

When it comes to your home loan check with your lender—there may be restrictions or fees for additional repayments.

Flexibility and accessibility

If your home loan offers a redraw facility you may be able to withdraw extra repayments you’ve made.

On the other hand, super provides less flexibility as far as access goes—the money is generally inaccessible until retirement. However, there is flexibility in how your money is invested, as you can change your investment options at any point in time. 

Earnings and economic markets

Your home and your super can be affected by economic changes—your super investment returns can fluctuate, a variable loan interest rate can change, as can your home’s value.

So it’s best to seek advice about earnings and markets with a financial adviser.

What’s right for you?

Explore the super versus mortgage calculator at the MoneySmart website and have a look at our education module to decide if property or super is better for you. There’s a lot to consider—and you may not need to choose one option over another.  

Home and retirement planner

Thinking about retirement can be both exciting and difficult. Find out what options you have to create a better retirement in three quick steps. 

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.