This is a common question among homeowners, and according to Damien Klassen from Nucleus Wealth, the answer depends on your income level, age, and mortgage interest rates at the time of your decision.
In a blog, Klassen offers advice for people considering what's best to do with a spare $10,000 in income.
Let's look into his findings.
Superannuation or the home loan?
Let's look at some obvious factors first.
The biggest benefit of using a spare $10,000 in income to pay down your home loan is the guaranteed annual interest savings. The downside is you'll have to pay full tax on that income if you use it in this way.
The biggest benefit of contributing a spare $10,000 in income into superannuation is the substantial tax saving on the way in (as long as you're under the concessional contributions cap) and the ongoing earnings on your investments (bearing in mind that investments sometimes result in losses, too).
Just to remind you, concessional superannuation contributions are taxed at 15%, which is lower than most individual income tax rates.
A case study…
Klassen has run the numbers using a fictitious case study of an Australian earning $100,000 per year.
They have a mortgage with an annual home loan interest rate of 6%. They also have a superannuation fund returning an average of 6% per year.
He looks at the different outcomes over a 10-year period of using that spare $10,000 to either pay down the home loan or bump up superannuation this year.
Here's what he finds:
At $100k, your marginal tax rate (in 2025) is 30% + Medicare levy = 32%.
So, your $10k becomes $6,800 off your mortgage after tax or $8,500 invested in super. i.e., you are $1,700 better off on day 1 in super.
If you save 6% on your $6,800 mortgage reduction over 10 years = $5,378 in interest avoided, tax-free.
If you made 6% in your $8,500 in superannuation and then paid tax on it = $5,155 after tax = $223 worse off in superannuation.
Net effect = $1,477 better off in super.
Klassen emphasises that the outcomes can be different depending on income levels and interest rates.
He says higher interest rates make using the money to pay off your home loan more attractive. Conversely, lower interest rates may make investing the money into superannuation a better option.
Klassen says people on higher incomes will "almost always" come out in front by contributing to superannuation.
Those earning less than $50,000 would likely be worse off if they put their spare $10,000 into superannuation vs. paying down their property loan, he says.
A few caveats…
While putting money into superannuation makes sense for a lot of people, they generally can't access the funds until they reach preservation age.
Klassen says having inaccessible savings helps some Australians keep their spending in check.
However, there is some risk involved because once your superannuation money is invested, there is no guarantee of positive returns every year.
Klassen comments:
Investment returns within super can fluctuate with market conditions.
While younger individuals have time to recover from downturns, older individuals, such as those around 65, face more immediate risks.
