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.