Is making extra mortgage repayments still the best option?
Should a person who has surplus income:
- make extra mortgage payments;
- contribute the money to super, or;
- invest the money in their own name?
When interest rates are high, the mortgage is often the best option as it offers a tax free, risk free guaranteed return equal to the interest saved by making the extra repayments.
Neither super nor investing can lay claim to being risk free or offering a guaranteed return and only pension funds can claim to offer a tax free return.
With mortgage interest rates now around 4-4.5%, it has become easier for super and investing to achieve a competitive return.
The average return for a Balanced super fund since super was made compulsory is 7.20%. (Superratings)
The average return from Australian shares for the last 20 years to December 2013 has been 8.70%. (ASX & Russell 2014 Long Term Investing report)
There are of course other factors to consider, such as:
- when you will be able to access any money contributed to super;
- what time frame you wish to invest over, and;
- whether shares are an appropriate investment for you.
If this is an issue that you are facing, you should consider speaking to a financial adviser. A financial adviser can help you to consider all the relevant variables and to make a decision that is in your best interest.
General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.