Rates are rising again. Should you pay down your mortgage or top up your superannuation?

Deciding between extra mortgage repayments or extra superannuation contributions has always been a tough decision.

That being said, when mortgage rates sat near 2%, almost any sensible investment in superannuation beat paying down debt.

However, that is no longer the case.

All four major banks now expect the Reserve Bank to lift the cash rate again before the end of the year.

What a rising cash rate does to the mortgage side

The cash rate already sits at 4.35% after three increases in 2026, and the board next meets on 28 and 29 September.

Westpac Banking Corp (ASX: WBC) now expects a rise to 4.60% in November, joining ANZ Group Holdings Ltd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA), while National Australia Bank Ltd (ASX: NAB) is tipping September as the month that rates rise.

The Reserve Bank’s housing lending statistics put the average new owner-occupier variable loan at roughly 6.25%.

That means that every extra dollar that is paid off that loan earns a guaranteed 6.25%, tax free.

There are very few assets Australia that offers that combination.

What the tax system does for superannuation

However, superannuation contributions can be a more tax-efficient way to invest your money.  

Salary sacrificed contributions are taxed at 15% going in, instead of at your marginal rate.

Investment earnings inside the fund are taxed at 15% during accumulation and are not taxed at all in pension phase.

The concessional contributions cap rose to $32,500 from 1 July 2026. That is $2,500 more room than the previous three financial years allowed.

Why the answer is still not obvious

On the flipside, two things can make paying down your debt more attractive.

The first is access.

Money inside superannuation is locked away until preservation age, which is 60 for anyone born after June 1964.

A mortgage repayment made through an offset account can be withdrawn tomorrow.

The second is certainty.

The mortgage return is guaranteed and the investment return is not.

To illustrate, the Vanguard Australian Shares Index ETF (ASX: VAS) is a reasonable proxy for the Australian portion of most balanced superannuation options.

The fund closed Tuesday at $111.50 and has returned just 0.82% over the past twelve months, which is a useful reminder that share markets do not deliver averages on schedule.

How I would think about superannuation versus the mortgage

The soft answer is that it depends on three things.

Your marginal tax rate decides how large the superannuation head start is.

Your age decides how painful the preservation rules are.

And your loan-to-value ratio decides how much you need the security of a smaller debt.

For someone in their fifties on a high marginal rate, superannuation is very hard to beat.

For someone in their thirties with a large mortgage and no buffer, the extra repayment usually wins on peace of mind alone.

Foolish takeaway

There is no universal right answer.

What has changed this year is that the savings from paying down mortgage side have become competitive at 6.25%.

Superannuation still wins on tax over a long enough horizon, and the higher contributions cap makes that easier to use.

I would make sure the emergency buffer exists first, then let the marginal tax rate decide the split.

The worst outcome is doing neither and letting the cash sit in a transaction account earning nothing at all.

The post Rates are rising again. Should you pay down your mortgage or top up your superannuation? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.