You have an extra $1,000 a month and a home loan. Send it at the mortgage and you shrink a guaranteed, after-tax cost. Salary sacrifice it into super and you buy growth in a 15%-taxed environment, but you lock the money away until your 60s. Both are defensible. Which one leaves you with more depends on your marginal tax rate, your mortgage rate, how many years you have, and how much you care about getting the money back before preservation age.
This post lays out the maths behind that decision: the tax asymmetry that tilts the answer toward super for higher earners, the guaranteed-versus-expected-return trade-off that tilts it back toward the mortgage when rates are high, and the access constraint that sits underneath both. It does not tell you which to pick. It shows you the levers so you can model your own numbers.
The short version
The same dollar, two different levers
Start by making the comparison fair. The trap in most online debates is comparing a pre-tax dollar going into super against an after-tax dollar going at the mortgage, which stacks the deck. Hold the cost to you constant instead.
A concessional super contribution (salary sacrifice or a personal deductible contribution) goes in before income tax and is taxed at 15% inside the fund, rather than at your marginal rate. So $1,000 of pre-tax salary becomes $850 invested in super. An extra mortgage repayment is made from after-tax income: that same $1,000 of pre-tax salary is only worth what is left after your marginal rate, and every dollar of it lands against the loan as principal.
That difference, 15% inside super versus your full marginal rate on the way to the mortgage, is the single biggest reason the answer changes with income. The ATO confirms concessional contributions are taxed at the concessional rate of 15% rather than your marginal rate (ATO, salary sacrificing super).
What ProjectFi models here
The tax asymmetry: why income tilts it
Think of each lever as a return on the dollar you put in.
- The mortgage return is your mortgage interest rate, full stop. Pay down $10,000 of a loan charging 6% and you avoid $600 of interest in the first year. That avoided interest is not income, so it is not taxed. A 6% mortgage paydown is a 6% guaranteed, after-tax, risk-free return. To beat it with a taxable investment you would need a higher pre-tax return, because the investment's earnings are taxed and the mortgage saving is not.
- The super return starts with a tax discount before any market return shows up. A contribution taxed at 15% instead of, say, 39% (the 37% bracket plus the 2% Medicare levy) is worth more invested from day one. On a 39% marginal rate, $1,000 of pre-tax income is $610 after tax in your hand, but $850 inside super. That is roughly a 39% head start on the same dollar, before the fund earns anything.
The higher your marginal rate, the larger that head start, which is why the contribution side gets stronger as income rises. On a 47% marginal rate (45% bracket plus 2% Medicare levy), $1,000 pre-tax is $530 in hand versus $850 in super, a 32-cent gap on the dollar. On a 32% marginal rate (30% bracket plus 2% Medicare levy), $1,000 pre-tax is $680 in hand versus $850 in super, a 17-cent gap. Same contribution, very different up-front advantage.
The offset-versus-deduction asymmetry
One subtlety that catches investors out: extra mortgage repayments on your own home have no deductible interest to give up, so the comparison is clean. But if the debt is on an investment property, the interest is generally deductible, which lowers the effective cost of carrying that debt and therefore lowers the after-tax return from paying it down. A 6% deductible investment-loan rate, at a 39% marginal rate, costs you closer to 3.66% after the deduction, so the "guaranteed return" from paying it off is that lower after-tax number, not the headline 6%.
The same logic explains why many people park spare cash in an offset account against an owner-occupier loan rather than making an irreversible extra repayment. An offset reduces the interest charged exactly as a repayment would, so it earns the same guaranteed after-tax return, but the balance stays liquid and redrawable. For an owner-occupier loan that liquidity is close to free. For a loan whose interest is deductible, redrawing for private use can taint the deductibility of that portion, so the offset-versus-redraw distinction matters. The point for this post is narrower: an offset gives you the mortgage-rate return without fully giving up access, which changes how the access constraint below weighs in.
Guaranteed return versus expected return
The mortgage return is certain. You know the rate, the saving is locked in the moment you pay, and it does not care what markets do. The super return is an expectation: a long-run average that any given decade can undershoot or overshoot. Two plans with the same average return can land in very different places depending on when the good and bad years fall, which is the whole reason probability-based planning beats a single point estimate.
So the comparison is not "6% guaranteed versus 7.5% expected" as if they were the same kind of number. A guaranteed 6% is worth more than a risky 6%, because you are not being paid to take the risk. The relevant question is whether the expected return on the invested dollar, after its tax discount and after allowing for the risk you are taking, clears the guaranteed mortgage-rate hurdle. When mortgage rates are high, that hurdle is high and the certain return looks strong. When mortgage rates are low, the hurdle is low and the tax-advantaged expected return tends to win on the maths, at the cost of taking on market risk.
How the two levers compare
| Extra mortgage repayment | Concessional super | |
|---|---|---|
| Return type | Guaranteed, equal to mortgage rate | Expected (market), with a 15% tax discount on the way in |
| Taxed? | Saving is untaxed (avoided interest) | 15% on contributions and on fund earnings |
| Tilts with income? | No | Yes, stronger as marginal rate rises (until Div 293) |
| Access before 60 | Liquid-ish via offset or redraw | Locked until preservation age |
| Market risk | None | Yes |
The access constraint sits underneath both
Super is preserved. For anyone planning their retirement today, the money is locked away until preservation age, which is 60, and you cannot touch it before then except in narrow hardship circumstances. A dollar of extra mortgage repayment, by contrast, is recoverable: through an offset balance or a redraw facility you can usually get at the equivalent cash before 60, which is exactly what a FIRE planner retiring at, say, 50 needs to bridge the gap to super. See preservation age explained for the rule, and how much you need to retire early for where the bridge fits the broader number.
This is why the "super wins on tax" conclusion is incomplete for early retirees. If you stop work at 50, money inside super does nothing for the decade before it unlocks. Tilting everything into concessional contributions can leave you tax-advantaged but cash-poor in exactly the years you need to fund. The access value of the mortgage lever (and of non-super investing) is not a tax number, but it is real, and it grows the further your target retirement age sits below 60.
A worked crossover
Consider Priya, 38, on a 39% marginal rate (a $145,000 salary, putting her in the 37% bracket once the 2% Medicare levy is added), with a 6% owner-occupier mortgage and $1,000 of pre-tax surplus a month to allocate. Run the same dollar through each lever:
- At the mortgage: $1,000 pre-tax becomes $610 after her 39% marginal rate, and all $610 lands as principal earning a guaranteed 6% after-tax return.
- Into super: $1,000 pre-tax becomes $850 after the 15% contributions tax, invested for an expected return but taxed at 15% on earnings and locked until she turns 60.
Priya starts with $240 more working for her inside super ($850 versus $610), a 39% head start that compounds. Over a 22-year horizon to preservation age, that head start plus a long runway is a strong tailwind for the contribution side, provided the expected return clears the 6% guaranteed hurdle after the 15% earnings tax and provided she does not need the money before 60. Shorten her horizon, lift the mortgage rate, or drop her marginal rate and the crossover moves toward the mortgage. Push her target retirement age down to 50 and the access constraint starts charging rent on the super side, because a third of her plan now runs on money she cannot reach.
Change one input and the answer can flip. That is the point: there is no universal winner, only a crossover that depends on your four numbers together. The same $240 head start that looks decisive at a 39% rate shrinks to $170 at a 32% rate and to nothing useful if Division 293 has dragged the effective contributions tax to 30%.
How each input moves the crossover
| Input | Moves toward super when… | Moves toward the mortgage when… |
|---|---|---|
| Marginal tax rate | Higher (bigger 15% discount), below Div 293 | Lower, or above the Div 293 threshold |
| Mortgage rate | Lower (lower guaranteed hurdle) | Higher (higher guaranteed hurdle) |
| Horizon to preservation age | Longer (more compounding of the head start) | Shorter |
| Target retirement age | At or after 60 (no bridge needed) | Well before 60 (bridge years to fund) |
| Preference for certainty | Comfortable with market risk | Values a guaranteed, risk-free outcome |
Notice that four of these five can point in different directions at once. A high earner retiring at 50 with a high mortgage rate is being pulled toward super by income and toward the mortgage by both the rate and the bridge. No rule of thumb resolves that; running the actual per-year maths does.
Try it yourself
Model the same surplus both ways
Set your surplus to pay down the mortgage, then switch it to invest, and compare the end-state net worth on your own income, mortgage rate, and retirement age, with Australian tax, super preservation, and Age Pension applied each year.
Open the salary sacrifice vs invest calculatorWhat this post is not about
This is the allocation decision: given a surplus, mortgage or super. It is deliberately not a guide to contribution-cap mechanics. How much you can concessionally contribute in a year, how the five-year carry-forward of unused cap works, and how the diminishing benefit behaves as you approach the cap are a separate topic. Those rules can constrain how much of the super lever is even available to you in a given year, so they are worth knowing, but they do not change the underlying allocation logic above.
For how the engine applies the contributions side inside a projection, see the ProjectFi methodology on super contributions.
The bottom line
Sources
- ATO, salary sacrificing super (concessional contributions are taxed at the concessional rate of 15% rather than your marginal rate)
- ATO, Division 293 tax (the $250,000 threshold and the extra 15% that takes the caught contributions to an effective 30%)
- ATO, how to claim rental expenses (interest on a loan used to buy a rental property is generally deductible, which underlies the offset-versus-deduction point)
- ProjectFi: preservation age explained (why super is locked until 60 for today's planners)
- ProjectFi methodology: super contributions (how the engine applies concessional contributions in a projection)