Pay off the mortgage or top up super?

The headline maths

Extra mortgage payments earn you a guaranteed, after-tax return equal to your mortgage interest rate. At 6.2%, every extra dollar paid down saves 6.2c of interest you’d otherwise pay — tax-free, risk-free.

Salary sacrifice takes pre-tax dollars, pays 15% contributions tax, and earns a long-term return inside super (typically 6–8% in a balanced option). Because the contribution starts with pre-tax dollars, you’re effectively investing a larger amount for the same take-home hit.

Worked example — Angela, 40, $110k salary, 6.2% mortgage

Angela has $12,000/year of spare after-tax income. Two paths:

• Path A — Extra mortgage. $12,000/year at 6.2% over 20 years compounds to about $452,000 of interest savings.
• Path B — Salary sacrifice. The pre-tax equivalent of $12,000 after-tax at her 32% marginal rate is about $17,647. Contribution tax (15%) takes $2,647, leaving $15,000 per year going into super. At 6.7% over 20 years that compounds to about $596,000.

Super wins by ~$144,000, but Angela can’t touch that money until 60.

When the mortgage wins

• You’re under 10 years from retirement. Less time for super’s tax advantage to compound, and mortgage payoff frees cash flow in retirement.
• Your mortgage rate is very high and/or your super return expectation is low.
• Your household is cashflow-fragile. A paid-down loan reduces bankruptcy risk if you lose work.
• You’re on a low marginal rate. The tax arbitrage (marginal rate minus 15%) is smaller.

When super wins

• You’re 20+ years from retirement. Compounding inside a 15%-taxed environment is powerful.
• You’re on a high marginal rate. The gap between 47% income tax and 15% contributions tax is the whole game.
• Your mortgage rate is modest (say, below 5.5%).
• You have surplus income and plenty of buffer in an offset account.

The offset account compromise

Money in a mortgage offset reduces interest without locking the money up. If you’re unsure, dumping spare cash in the offset gives you the 6.2% effective return with full flexibility. Once you’re confident you won’t need it, roll the offset into either extra repayments or super.

Rules of thumb

• Under 40: lean super (time is your friend)
• 40–50: split — top up super to at least get employer match and use carry-forward if applicable; extra into offset
• 50–60: lean mortgage (once super is on a comfortable trajectory)
• Always: keep a 3-month expenses emergency fund outside both