Reassessing your mortgage: Is paying it off the best move?

For many Australians, owning a home outright is a long-standing financial goal. Paying down your mortgage as quickly as possible feels like a natural priority, especially since interest on a home loan is not tax deductible. But when you’re ahead on repayments or have extra cash flow, it may be worth asking if putting more money into the loan is the most efficient use of your funds.

In some cases, alternative strategies can offer stronger long-term outcomes. Whether you’re mid-career with surplus income or nearing retirement with a manageable loan balance, it’s worth exploring where your money works hardest.

1. Consider salary sacrificing into super

Your home loan repayments are made with after-tax dollars. If you have a spare $80 a week, that’s money already taxed at your marginal rate. By salary sacrificing that amount into superannuation instead, you could contribute more before tax. For example, if you’re on the top marginal rate of 47 percent including the Medicare levy, you could contribute $150 from your pre-tax income, which becomes $80 less in your take-home pay. That contribution would be taxed at just 15 percent within the fund (or 30 percent for high-income earners), allowing more of your earnings to be invested.

If your super fund is generating a return that exceeds your mortgage interest rate, you may come out ahead. This is especially true over longer time frames where compound growth becomes significant. The trade-off is access, since superannuation is preserved until you meet a condition of release.

2. Explore investment options using borrowed funds

Another approach is to use surplus cash flow to support an investment loan. While your home loan interest is not tax deductible, interest on an investment loan typically is. This offers a different tax treatment that can improve the overall return. If the net investment performance (income and capital growth, after costs) exceeds the after-tax cost of your home loan, the strategy may help build wealth faster.

This route carries more risk and should align with your long-term objectives and comfort with market fluctuations. Property, managed funds or shares can all be considered depending on your financial position and time frame.

3. Weigh up liquidity, risk and time horizon

The numbers matter, but they are not the only factor. Mortgage repayments offer certainty and reduce household risk. Extra super contributions are tax-efficient but cannot be accessed until retirement. Investments may outperform over time but can fluctuate and require careful planning.

Each of these strategies can be valuable, but they can also be complex to implement. If you’re weighing up your options, our team at Stream Financial would be happy to help you explore what may suit your situation.