Are you better off putting $10k in your home loan or in super?

Our in-house mortgage and superannuation experts crunch the numbers to help you work out the best place to park your money.

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The truth about your money is that small and simple decisions can produce big financial results. In this article, our in-house Finder experts Alison Banney, banking and investment editor, and Sarah Megginson, senior editor of home loans, crunch the numbers on how an investment of $10,000 could play out when deposited into your super versus your home loan.

To work out the best decision for you and your personal situation, you'll need to consider a few things:

  • What is your goal? Do you want to pay your mortgage off as soon as possible, or are you happier funnelling your funds into a retirement fund where compound interest can work its magic?
  • Are you likely to get more "bonus" money in the future? Are there more tax refunds, investment dividends, inheritances or lump sums on the horizon? If so, this should factor into your decision about how to best make your money work for you.
  • When do you want to retire? The closer you are to retirement, the less growth you're likely to experience in super, so putting the money in your mortgage might make more sense.

There's no "one size fits all" or ideal solution to suit everyone.

However, with these questions in mind, you can explore the options available to you in our "super vs. mortgage" analysis.

How much could you save by adding $10,000 into your super?

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Alison Banney, Editor, Banking and Investments

There are several benefits to putting $10,000 into your super, but there are a few things to consider before doing this.

The most obvious benefit of contributing to your super is that it'll help your retirement savings grow. And thanks to the way super is invested and your returns are compounded over many years, that $10,000 will likely be worth much more by the time you retire. This is especially true the younger you are.

Let's take a look at a few different situations using IndustrySuper's calculator to see how much that $10,000 could be worth when you retire at the age of 65. For the sake of the salary assumptions, we'll use the average earnings for each age group.

Age Current salary Value of $10k by the time you're 65Total return on $10k investment
25$55,000$35,000$25,000
35$75,000$26,000$16,000
45$75,000$19,000$9,000

As you can see, if you're 25 that $10,000 could be worth more than three times as much by the time you retire by adding it into your super. Note that this compounding growth

  • Decreases the older you get since the money isn't invested for as long.
  • The length of time invested and rate of return/type of investment account will impact the growth rate you personally experience.
  • If you're going to add money into your super, the earlier you do this the better.

Note that if you withdrew $10,000 from your super in 2020 under the government's COVID-19 early access initiative, it is possible to rebuild this money by making regular, small contributions. Modelling from QSuper shows you can recover this $10,000 plus the lost investment earnings by contributing $10-20 a week to your super.

Contributing to super has tax benefits

There are also tax benefits to contributing $10,000 into your super. If you opt to sacrifice a small amount of your pre-tax income each month into your super, that money will be taxed at the lower super rate of just 15%. This is likely to be lower than your standard income tax rate, which could be as high as 45% depending on what you earn.

As well as helping your super grow, by salary sacrificing into your super you'll also be reducing your total taxable income for the year. This means you'll pay less tax, too.

If you want to make a one-off $10,000 contribution into your super, you can claim a tax deduction for this amount at tax time. That's provided you haven't already reached your concessional contribution limit of $25,000 a year (this limit includes the money paid by your employer).

Big considerations before adding money to your super

While a $10,000 contribution into your super will certainly help your retirement balance grow, you need to remember you can't access this money until you retire.

You might not need that $10,000 right now, but if you're planning to purchase a property or pay down debt, or you end up having a large, unexpected expense pop up, you might find yourself needing that cash.

Another thing to keep in mind is that there are no guarantees with the stock market. While we can quite confidently say the market will continue to rise over the long term, this doesn't rule out periods of heavy volatility (like what we saw throughout 2020). This is something to keep in mind if you're very close to retirement.

How much could you save by adding $10,000 into your home loan?

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Sarah Megginson, Senior Editor, Home Loans

Any additional repayment you can make into your home loan is going to help you pay less interest and help you own your home outright sooner.

For instance, if you have a $600,000 mortgage and you pay just $35 per week into the loan as extra repayments, you would save over $24,000 in interest and own the home 2 years and 7 months sooner. (This example is based on a variable rate, 2.5% mortgage over 30 years).

You get this result simply for investing about the same amount of money you would spend each day on a cup of takeaway coffee. If that's the result with just $35 per week, then what kind of impact could you have with $10k?

With a sum like $10,000, the savings could be significant. Using Finder's lump sum calculator, let's look at a few different loan sizes and loan terms to demonstrate what kind of impact this could make.

All scenarios assume a 30-year overall loan term, a variable rate loan and an interest rate of 2.5%. When we reference interest savings over the life of the loan, these calculations take into account the total savings over the remainder of the loan term:

  • 2 years into the loan = 28 years remaining
  • 5 years into the loan = 25 years remaining
  • 10 years into the loan = 20 years remaining

Based on a $400,000 loan

How far into the loan are you?Loan sizeInterest savings over the life of the loanNumber of years shaved off the home loan
2 years$400,000$98811 year
5 years$400,000$846311 months
10 years$400,000$631910 months

Based on a $600,000 loan

How far into the loan are you?Loan sizeInterest savings over the life of the loanNumber of years shaved off the home loan
2 years$600,000$99688 months
5 years$600,000$85387 months
10 years$600,000$63786 months

Based on an $800,000 loan

How far into the loan are you?Loan sizeInterest savings over the life of the loanNumber of years shaved off the home loan
2 years$800,000$10,0116 months
5 years$800,000$85755 months
10 years$800,000$64075 months

Big considerations before adding money to your home loan

As with adding money to your super fund, a big consideration when deciding where to put $10,000 is whether you may need access to that money.

Depending on the type of loan you have, you may not be able to withdraw any of that lump-sum payment after you've added it to your mortgage.

One potential solution here is to put the funds in an offset account, which is an account that offsets the amount of mortgage interest you pay, while also giving you ongoing access to the money.

Is there a definitive answer to putting money in your super vs your home loan?

Annoyingly, the answer is no. Our calculations show that you could earn up to $25,000 by investing your $10k in super, or save up to $10,000 by adding it into your mortgage. From these examples, it seems like super is the clear winner.

But these examples vary depending on so many personal factors, including but not limited:

  • Age: Younger people can get more out of investing in super than those closer to retirement as there is more time for your investment returns to compound.
  • Ideal/planned retirement age: The closer you are to retirement, the more important it may be to eliminate debt and pay off your mortgage.
  • Superannuation fund type: Is it balanced, low-risk or high-risk? This impacts your returns.
  • Home loan term remaining: The sooner you make extra repayments into your loan, the less interest you'll pay and the sooner you'll own your home outright.
  • Mortgage interest rate: This affects the impact your $10,000 investment will make.

Our examples also factor in two different timelines – the superannuation calculation timeline ends at your retirement, and the mortgage calculation timeline ends at the conclusion of your loan term.

Therefore, it's difficult to give a definitive answer about which option is the best financial move for you.

Remember, to work out the best decision for you, you need to consider the following:

  • What matters most to you: There's a psychological aspect at play, and for some people, the comfort and security of paying off their mortgage means you'll sleep better at night.
  • Your financial position: If there are more tax refunds, investment dividends, potential inheritances, pay rises or lump-sum payments coming your way, meaning you'll need to make this decision again, you may want to consider your broader goals beyond this one decision.
  • Your investment timeline: If retirement is looming, then paying down your mortgage might be your top priority. If you still have 30+ years in the workforce ahead of you, then it may still be a long-term goal, and making your super work harder for you could hold more appeal.

To make this decision, it might also be a good idea to seek out professional financial advice. Finance and investment expert Noel Whittaker does offer one piece of guidance.

"If you are over 50 with a mortgage, you are better off to maximise your concessional contributions to super, instead of boosting your home loan repayments," he says.

"This is because concessional contributions to super lose 15% entry tax, whereas money in your pay packet loses tax at your marginal rate."

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