Super vs mortgage – which wins out?

While the main job of your super is to help you save for retirement, it’s more flexible than you might think. It can even help you save for a first home. 

But the First Home Super Saver Scheme (FHSS) isn’t the only time your home and your super form part of the same conversation. At some point down the track, you’ll start facing tricky decisions about whether to build up your super or keep paying down your mortgage. 

So, let’s explore your options and try and make those decisions more manageable. 

The First Home Super Saver Scheme 

Saving for a home deposit is a big commitment, and it usually comes with sacrifices. Fewer meals out or weekends away with friends. Jogging around the block instead of forking out for a monthly gym membership. 

On top of that, it can be tough to know where to keep your hard-earned savings as they grow. High–interest savings accounts are increasingly low interest these days, but the share market comes with increased risk and is normally better for long-term investments. 

The First Home Super Saver Scheme may offer a partial solution. Introduced a few years ago, it allows you to save money for your first home inside your super account and withdraw it, plus earnings, when it’s time to buy. 

What are the benefits of FHSS?  

1. Super is taxed differently from your income – usually to your advantage. You only pay 15% when contributing to super, while you pay your marginal rate on any money you save elsewhere.
2. There’s no risk to the money you contribute to this scheme. Even in the worst-case scenario, where super returns are negative, the money you take out under this scheme will be what you contributed, plus a deemed rate of return.
3. You can save up to $30,000 in super this way (a maximum of $15,000 per year). Simply make voluntary contributions as normal and these will be identified as “Super Saver” contributions when you apply to take them out again. Just keep an eye on the contribution caps each financial year to make sure you don’t go over the limits. 

Not everybody can access this scheme – only first home buyers who:  

• already live in or will soon be living in the home they’re buying, and 
• intend to live there for at least six of the first 12 months they own the home. 

There are other important things to know about this scheme listed on the ATO’s website, including eligibility criteria, that you’ll need to read before heading down this path.  

For even more info, read this handy Government fact sheet. 

So, which comes first – super or mortgage?  

While your super starts from zero and grows over a lifetime, your mortgage starts as a frighteningly large sum and sometimes take a lifetime to pay off! 

So, if you have a little extra cash to spare and you want to put it towards your future, which should you focus on: building your super or paying down your mortgage debt? 

As with all things money related, it depends on your individual circumstances and what’s going on in the broader economy.  

For example, right now could be a good time to funnel extra savings into super. That’s because, with interest rates at record lows and predicted to stay that way for years, your super is likely to get a higher return than what you’re paying as interest on your mortgage. 

But there are other factors to consider, like how quickly you could pay off your mortgage, after which you have more debt-free years to concentrate on super, and whether it matters to you on a personal level to own your home outright. 

On the other hand, the earlier you contribute to super on top of any SG from your employer, the longer that money can grow. Even small amounts can add up to thousands of dollars extra in retirement. Not only that, but there are also tax perks with super that could reduce your income tax, giving you more money in your pocket right now. 

Confused yet?  

The Government’s MoneySmart website offers a range of calculators and advice to help you project your future super balance if you make additional contributions, as well as ways to pay off your mortgage faster. Play around and see what might best suit you. 

And we’re always here to help. Our team of Financial Planners* can consider your goals and your personal circumstances to help you make the right choices, not only for your finances, but for your peace of mind. Get in touch by visiting the Advice pages on our website or calling 1300 360 988.  

*First Super Financial Planners are authorised representatives of Industry Fund Services Limited (ABN 54 007 016 915, AFSL 232514).