Reduce your home loan or salary sacrifice?

It is often thought that paying off the mortgage on a home should be a top priority because the interest is not tax deductible. But does this apply to everyone?

As you make the mortgage repayment with “after tax” dollars this may not always be the best approach. For example, if you have a spare $100 each week which could be applied to your mortgage, an alternative might be to ask your employer to make a “salary sacrifice” contribution to your superannuation. If you are on the top marginal tax rate, you could salary sacrifice $195 to be paid into your super and, after tax, still receive only $100 less per week. If your superannuation fund is earning more than the interest rate on your mortgage you would be well in front.

It may also be beneficial to apply the surplus income to funding an investment with the help of borrowed funds. Again, if the net benefit (income and growth) from the investment exceeds the interest rate on your home loan, you will be ahead.

Personal circumstances vary with regard to tax rates, funds available, your objectives and risk profile, so talk to us first and we can help you make the most of your own situation.