A new online tool aims to help Australians settle that crucial investment question: should I put extra money into superannuation, or pay down my home loan?

It is a pressing concern for many families, as Australia continues to rank highly in the world for household indebtedness.

Borrowers concerned that the banks will continue to lift variable rates may want to build up an equity buffer, while those nearing retirement may lean towards boosting their super.

To help Australians choose, the MoneySmart team at corporate regulator ASIC has developed a handy tool to help simplify the choice.

Miles Larby, head of financial literacy at ASIC, said his team created the tool because the choice between home ownership and superannuation impacts a large section of the nation.

“For many people these are amongst the biggest financial decisions they will face,” Mr Larby told The New Daily.

“A good place to start is to ask yourself if you want to access your money before retirement or not, should you need it. The answer may differ depending on your financial goals and whether you’re planning to retire in the next few years.

“As with any important financial decision you should consider the option that best suits your financial and lifestyle priorities, and seek professional advice if need be.”

Putting more money into superannuation can also be a good way to diversify an investment portfolio, rather than putting every spare cent into the property market.

But paying debt feels good. Everybody enjoys the freedom of chipping away at the mortgage hanging over their heads. So, as suggested by ASIC, it is important to compare the two options logically.

It’s important to do the math, too. What is your expected return in a super fund versus the mortgage savings? Photo: Getty

There are two ways to put extra money into a super fund: through salary sacrifice (an amount deducted from your pay cheque and taxed at 15 per cent) and through after-tax contributions.

If you are considering salary sacrifice, then factor in the income tax you’ve saved and the fund’s expected return, and compare it to the interest you’ll save by paying down the mortgage faster.

Keep in mind there are limits on how much income you can shift into your super.

Also, don’t forget that if you earn less than $37,000 a year, the government will pay up to $500 extra into your super account per year, depending on how much you and your employer contribute before-tax.

Melbourne-based financial planner James McFall, managing director at Yield Financial Planning, said paying down a mortgage can make more sense if the loan is recent, and the borrower’s equity position poor.

“Doing so will not only create an equity buffer for yourself, which is a pivotal part of your own personal risk management – against risks such as being made redundant – but it gives your asset time to grow also,” Mr McFall told The New Daily.

Debt reduction is also a good option if your investment focus is on the short term, say the next one to five years, Mr McFall said.

A third alternative, included in the ASIC calculator, is putting your money into a savings account or term deposit.

Given current ultra-low rates, your extra cash will probably get a better rate of return in either a super fund or with debt reduction. But having an emergency fund is important too.