Rising Interest Rates: Home Loan vs Salary Sacrifice?

TL;DR

By comparing the tax benefits and interest rates, it is evident that putting extra money into superannuation can be more beneficial than paying extra for a home loan.

Transcript

foreign my name's Robert Gowdy from Consortium private wealth and I thought I'd put together this quick video based on some feedback we've got on one of our videos where we I compared uh putting money extra money to a home loan versus extra money into superannuation via concessional contribution with the understanding that any money that goes into ... Read More

Key Insights

• 🚕 Superannuation offers tax benefits with its lower tax rate of 15% compared to the marginal tax rate.
• ☠️ Manipulating interest rates can affect the outcome, potentially increasing the benefits of contributing to superannuation.
• 💰 After 12 years, there is a $56,000 benefit in putting more money into superannuation compared to paying extra for a home loan with after-tax dollars.
• ↩️ With an 8% annual return, the advantages of superannuation contributions become even more pronounced.

Questions & Answers

Q: What is the main difference in tax implications between putting extra money into a home loan and superannuation?

The main difference is that superannuation is taxed at a lower rate of 15%, while the marginal tax rate can be as high as 47% with Medicare. This means that putting money into superannuation can result in significant tax savings.

Q: Does the difference in interest rates affect the outcome of the strategy?

Yes, the video demonstrates that by manipulating interest rates, the outcome can vary. Higher interest rates can potentially increase the benefits of putting money into superannuation, especially when comparing it to paying extra for a home loan.

Q: When can the money in superannuation be used to pay off a home loan?

Assuming the preservation age has been met and the individual has retired, the money in superannuation can be withdrawn to pay off the home loan. This can be done after 12 years, with an additional $283,000 available, resulting in a $56,000 overall benefit.

Q: How does earning an 8% return per year affect the comparison between home loan and superannuation?

Earning a higher return on investment, such as 8% per year, can greatly impact the benefits of putting money into superannuation. With higher investment returns, the advantages of contributing to superannuation become even more significant.

Summary & Key Takeaways

• The video compares the tax implications of putting extra money into a home loan versus superannuation, where superannuation is taxed at a lower rate (15%) compared to the marginal tax rate (which can be as high as 47%).

• An Excel spreadsheet is used to calculate the outcomes of different scenarios, considering interest rates, investment returns, and tax rates.

• After 12 years, it is found that putting more money into superannuation as a concessional contribution results in a $56,000 benefit compared to paying extra for a home loan with after-tax dollars.