With mortgage rates expected to hit 5.5 per cent, homeowners need to decide whether to pay down their mortgage, tip money into super or invest outside super.
As Australians grapple with the most aggressive rate-increasing cycle in decades, experts say it’s time for savers to reassess where they invest their spare cash., homeowners need to weigh whether to pile any savings into their mortgage, tip more money into super, or invest outside of super.
Paying just $100 more than required per month means a borrower will pay off the loan 18 months earlier and incur $51,000 less in interest over 30 years. “So if my marginal rate is 32.5 per cent, not including Medicare, then I have to earn 8.15 per cent pre-tax [to get the equivalent return]. At the moment it would be tough to get a guaranteed return on an investment of 8.15 per cent per annum.
“Most income earners would have a marginal tax rate higher than that. If tax on earnings is low, the effective net return increases and the compounding effect of this over time can be significant,” Graham says. Graham says there is an element of “discipline” associated with investing in super, since contributions can be made regularly, eliminating timing bias.
“With the larger super funds, members are often limited to the large, broad asset classes like Australian and global shares, Australian and global bonds, cash, infrastructure and property,” he adds.
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