Deciding whether to put extra money toward your mortgage or super is a common financial challenge - especially as retirement approaches. The right choice depends on your individual situation. MLC’s Head of Technical, Jenneke Mills, breaks down the options and helps you weigh the pros and cons.

Building the case for super over mortgage

The power of compounding returns

"Entering retirement debt-free is a fantastic goal," says Mills, "but I always say in the mortgage vs super debate, you don’t necessarily have to choose between paying down debt and saving for retirement. Both can work together."

Thanks to the effects of compounding, even small, consistent contributions to your super can grow your balance exponentially. As your money earns returns, those returns generate even more returns, creating a snowball effect that grows your savings for retirement.

“Even contributing the cost of one weekly coffee to your super can add up over time, significantly boosting your retirement savings,” says Mills.

Use our Retirement Projector to find out how much super you might have in retirement and how little changes now could make a big difference

There are also some other key points to consider in the mortgage vs super debate:

Tax benefits of super

Super also has powerful tax benefits.

“One great benefit of investing in super is that concessional (before-tax) contributions are taxed at a maximum rate of 15%. This can be higher though if you earn over $250,000,” explains Mills.

“Mortgage repayments are usually made from your take home pay after you’ve paid tax at your marginal tax rate. Your marginal tax rate could be as high as 47%. So, depending on your circumstances, making a voluntary personal contribution to super and claiming a tax deduction for it, or salary sacrificing may result in an overall tax saving of up to 32%.”

The annual concessional cap is currently $30,000¹, and if you qualify, you can carry forward unused contributions for up to 5 years. But be careful, exceeding the cap will mean extra tax at your marginal rate. Learn more about carry forward contributions.

Tax on super investment earnings are also beneficial

Super’s tax advantages extend to the investment earnings generated within your fund. The earnings generated by your super investments are taxed at a maximum rate of 15%², and eligible capital gains may be taxed as low as 10%.

“Once you retire and commence an income stream with your super savings, the investment earnings are exempt from tax, including capital gains. Staying invested can be a great, tax-effective way to continue to make your money work for you in retirement,” explains Mills.

Also, if you're over 60, lump sum withdrawals from your super are generally tax-free.

Restricted access to super

While super offers great tax benefits, contributions are ‘preserved’, meaning you cannot access these funds until retirement.

“Before you start adding extra into your super, it’s a good idea to think about your broader financial goals and how much you can afford to put away because with limited exceptions, you generally won’t be able to access the money in super until you retire,” says Mills.

In contrast, many mortgages offer flexibility, such as redraw facilities or offset accounts, which let you access extra payments if needed.

Building the case for reducing your mortgage over super

The appeal of being debt free

“Paying off your mortgage and entering retirement debt-free is pretty appealing,” says Mills. “It’s a significant accomplishment and means the end of a major ongoing expense.”

Depending on your home loan’s size and term, interest paid over the term of the loan can be considerable. Paying off your mortgage early also frees up that future money for other uses.

“Reducing your mortgage balance not only lowers your debt but also cuts down on interest payments over the life of the loan, essentially giving you a return equivalent to the home loan interest rate,” explains Mills.

Consider other debts first

Before directing extra payments to your mortgage, Mills advises considering any high-interest non-deductible debts, such as credit cards or personal loans. Paying these off first can provide better financial relief as they often carry higher interest rates than mortgages.

Mortgage vs super – which should you prioritise?

To make the right decision for you and your family, Mills recommends first defining your retirement lifestyle and calculating how much you'll need each year. Then, assess your current super balance, contribution strategy, and whether you’re on track to meet your retirement goals.

Use our personal super calculator to estimate of how much super you may have in retirement, and how long your super may last.

“It’s about striking a balance that is right for you today and remember, nothing has to be forever. As your life changes, you can simply adjust your contributions strategy to suit your needs,” says Mills.

Life is complex, so it pays to speak with a financial planner before you make any big financial decisions when it comes to your super or mortgage.

¹ For the financial year 2024-25, the general annual concessional contribution cap is $30,000. Your cap may be higher if you can use catch-up concessional contributions. You can contribute up to your cap from your pre-tax income without incurring additional taxes.
² The investment earnings in your super fund account or transition to retirement account are generally taxed at 15%.

Important information and disclaimer 
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at March 2025 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.