Should I put some extra cash that I have received into my super or pay off my mortgage?

Hi Simon,
Great question. If it is your principal residence mortgage, I would suggest paying down debt should be your first priority, however there are a few more things to consider with this and giving you a straight answer is difficult without knowing your financial situation.

You should consider the following:
- the interest rate you are paying
- the average investment return your super is making
- age to retirement
- what is your overall strategy (debt reduction vs wealth creation)?
- is this an investment property? perhaps keeping the debt limit higher will offset the income earned.

Feel free to touch base with me if you wanted a review or had further questions, I am located in Albury also.
Best wishes
Meiken Barnes - intouch Finance

Hi Simon,

This is a common question. It is not a simple question to answer as there is pros and cons to both and they differ depending on your age and your income and also to some extend your willingness to take on some investment risk.

If you are working and paying income tax, then your best type of contribution to superannuation is probably a concessional contribution (like salary sacrifice contributions) but the rules have changed this year and you can also just contribute a lump sum from your bank account and claim a tax deduction. But you need to be mindful that there is a cap of $25,000 of concessional contributions you can make per year and your employer contributions and any salary sacrifice contributions are also included in this.

Unless you are quite young, your best option would probably be making concessional contributions.

If you have additional funds over and above this, the question gets a lot harder. Money on your mortgage earns a guaranteed rate of return, essentially tax free, equal to your mortgage interest rate - whilst generally that is a good option, in times of such low interest rates, you may look to invest elsewhere and in your case might be to contribute to superannuation as a non concessional contribution. This would be to take on some investment risk in order to achieve a greater return (after fees and taxes) of your mortgage interest rate.

Keep in mind that the tax rate in superannuation is 15% so sometimes if you have a non working spouse, it is better to invest in their name at 0% tax than in superannuation.

Finally, if you feel like you do want to invest rather than reduce your debt, another option could be to use the funds to pay down your home loan, then reborrow the same amount as an investment loan and invest that. This would give you the same overall debt and investment position that you would have if you just contributed to super, but you would have changed some of your debt from non deductible debt to deductible debt and could give you an overall better tax position than if you just contributed to superannuation.

Like everything, there is no simple answer unfortunately, but hopefully that helps you out somewhat.

Cheers

Glenn

Sure is Simon, 508 Macauley Street Albury. Feel free to pop in one day or call for a chat.
0419 918 338