You’re earning well, you have a decent-sized mortgage, and every so often the same question surfaces. Should the next spare few thousand go into super, or off the home loan? Both feel like the responsible move, which is exactly why the decision nags. You can do the sensible thing either way and still wonder if you picked the wrong one.
For most of the past few years, the numbers quietly leaned toward super. Then mortgage rates climbed, and the question is worth asking again. Here is what has actually changed, and how to think about it for your own personal situation.
What each option actually gives you
Salary sacrificing means directing part of your pre-tax pay into super instead of taking it home. Inside super, that money is taxed at 15% rather than your marginal rate, which for a high earner can be as high as 47% once the Medicare levy is counted. The catch is access as that money is locked away until you reach your preservation age and meet a condition of release, usually around 60.
Paying down the mortgage works with after-tax dollars, the money already in your account. Every dollar you knock off the balance saves you the interest you would have paid on it, and that saving is tax-free. If you use an offset account or redraw, the money also stays within reach if life throws something at you.
So one option gives you a tax break going in and locks the money up. The other gives you a guaranteed return and keeps your hands on the money. The right answer depends on how those two things stack up at today’s rates and your personal situation.
Why a 6% mortgage is a different question to a 3% one
This is the part that has shifted. A few years ago, variable mortgage rates sat close to 3%. Paying down the loan locked in a guaranteed 3% return, tax-free, which is a fairly low bar for a diversified super fund to clear over a long horizon. Given super also handed you a tax break on the way in, the loan usually lost the contest.
Variable rates now sit around 6%. Paying down a loan at that rate is a guaranteed 6% return with no tax on it, and that is a much higher bar. As a rough guide, an investment inside super would need to earn around 7% before its 15% earnings tax just to match that, and an investment held in your own name would need to earn more still, because part of the return goes to tax. The guaranteed return from the mortgage did not change. What changed is that it got a lot harder to beat.
The head start super still has
None of this means higher rates settle the argument in favour of the mortgage. Super holds one advantage the loan can never match, and it happens on the way in.
A dollar of pre-tax pay, taken home at the top marginal rate, is worth about 53 cents. Salary sacrificed, the same dollar arrives in super worth about 85 cents, because it is taxed at 15% instead of 47%. That 32 cent head start is real, it is immediate, and paying down the mortgage cannot replicate it because you are working with after-tax money to begin with. Higher rates narrow super’s lead, but they do not automatically erase it.
Division 293 and the highest earners
For higher earners, the head start is smaller than it looks. Once your income plus your concessional contributions pass $250,000, an extra tax called Division 293 applies. It lifts the tax on the contributions that sit above that threshold from 15% to 30%, so for these earners the break on the way in shrinks from about 32 cents in the dollar toward 17 cents.
That threshold has not moved since 2017, so more people are caught by it every year as incomes rise. The concessional contributions cap for 2026-27 is $32,500, and it counts your employer’s contributions as well as anything you sacrifice. If you are close to or above $250,000, super still helps. But its edge over a 6% mortgage is far slimmer than the headline 15% rate suggests, and the loan starts to look more attractive.
If your super balance is heading toward $3 million, a separate tax on earnings applies above that level, which is worth a proper conversation of its own.
What usually decides it
For most people the deciding factor is not the numbers on the spreadsheet. It is time and access.
If you are 15 or more years from being able to touch your super and your income is steady, the tax break has decades to compound and the lock-up barely matters. Topping up super often makes good sense. If you are only a few years from preservation age, you run your own business with lumpy income, or you would simply sleep better with a smaller loan hanging over you, the mortgage’s guaranteed return and the flexibility of an offset account tend to win. Certainty has a value that does not show up in the return figure.
It is also rarely all or nothing. Plenty of people split the difference, capturing some of the super tax break while still chipping away at the loan. The right mix depends on where you sit on income, timeline and temperament.
Getting the call right for your situation
A few years ago this was close to a default. At today’s rates it is a genuine decision, and the right answer turns on your marginal tax rate, how far you are from accessing super, and how much you value having the money within reach. Those are exactly the variables worth modelling before you commit the next few thousand dollars in either direction.
If you would like to see how the numbers land for your own income, mortgage and timeline, we can walk through it with you and help you make the call with the full picture in front of you. Book a complimentary strategy session with one of our Sydney financial advisers to see what’s the right move for you.
Frequently asked questions
Is it better to salary sacrifice into super or pay off my mortgage?
There is no single right answer, and higher mortgage rates have made the decision closer than it used to be. Salary sacrifice gives you a tax break going in but locks the money away until preservation age. Paying down the mortgage gives you a guaranteed, tax-free return equal to your interest rate and keeps the money reachable through an offset or redraw. The best choice depends on your marginal tax rate, how far you are from accessing super, and how much you value flexibility.
How much tax do you save by salary sacrificing into super?
Concessional contributions are taxed at 15% inside super instead of your marginal rate. For someone on the top rate of 47%, that is a saving of about 32 cents in the dollar going in. For higher earners caught by Division 293 tax, the rate on the affected contributions rises to 30%, reducing the saving toward 17 cents in the dollar.
What is Division 293 tax and how does it affect salary sacrifice?
Division 293 is an extra 15% tax that applies when your income plus concessional contributions exceed $250,000. It applies to the contributions that sit above that threshold, lifting the tax on them from 15% to 30%. The $250,000 threshold has not changed since 2017, so more people are affected each year. It does not remove the benefit of salary sacrifice, but it does shrink the gap between super and paying down a mortgage.
Can I access money I salary sacrifice into super?
Generally no. Money contributed to super is preserved until you reach your preservation age, usually around 60, and meet a condition of release. This lock-up is one of the main reasons some people prefer to pay down the mortgage, since money in an offset account stays available if their circumstances change.
Does paying down the mortgage give a guaranteed return?
Yes, in the sense that every dollar off the balance saves you the interest you would have paid on it, and that saving is not taxed. At a variable rate near 6%, that is a guaranteed 6% tax-free return, which is a high bar for other investments to beat with certainty.
What is the concessional contributions cap for 2026-27?
The concessional (before-tax) contributions cap for 2026-27 is $32,500. This includes your employer’s super guarantee contributions as well as any salary sacrifice and personal deductible contributions. Unused cap from earlier years may be available under the carry-forward rules if your total super balance is under $500,000.
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