Should you pay off your home loan?

We are often told that paying off the mortgage on our home should be our first priority because the interest is not tax deductible. But does this apply to everyone?

Consider salary sacrifice

Since you make your mortgage repayment with ‘after tax’ dollars this may not always be the best approach. For example, if you have a spare $80 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 of 47% including the Medicare levy, you could salary sacrifice $150 to be paid into your super and, after tax, still receive only $80 less per week. If your superannuation fund is earning more than the interest rate on your mortgage you would be well in front.

Investment returns can exceed mortgage interest rates

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.

Consult a qualified adviser before making financial decisions

Personal circumstances vary with regard to tax rates, funds available, your personal objectives and risk profile, so it’s best to contact your financial adviser before making decisions of this nature.

Warm regards,

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Ben Widdup | EGU Wealth Management
Financial Adviser

1300 102 542 | 0402 633 205
ben.widdup@egu.au | www.egu.au
GPO Box 1598 Brisbane QLD 4001

This is general advice and has been prepared without considering your objectives, financial situation, or needs. You should therefore consider the appropriateness of the advice, in light of your own objectives, financial situation, or needs, before following this advice. If the advice relates to the acquisition, or possible acquisition of a particular financial product, you should obtain a copy of, and consider, the Product Disclosure Statement (PDS) for that product before making any decision.