kiwisaver, investing, first home buyer

Should I Contribute More to KiwiSaver or Pay Down my Mortgage?

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Adulting is hard, there are so many things to balance! One of them is our finances, specifically the question - if I have extra savings, should I contribute more to KiwiSaver or pay down my mortgage?

To answer that question, we need to consider a few aspects of our financial lives and the economy in general. Key points such as the interest rates on your mortgage and the expected growth rate of your KiwiSaver account come into play. One of the things you want to compare is how much you will get in returns on your KiwiSaver account vs how much you will need to pay in interest on your mortgage.


Before diving into decision making, we will need to make some assumptions: 

The first one is that returns on the market can fluctuate dramatically from year to year. This shows that contributing more to your KiwiSaver is likely to be ‘riskier’ as opposed to paying off your mortgage.

To make some comparisons, we will also need to make some assumptions on KiwiSaver returns. These are summarised in the following table:

Managed Fund/ Investment Portfolio growth rates (after taxes and fees)













Current variable floating home loan rates are between 3.40% and 4.5%.

So without taking into account any other factors, it would make sense that if your KiwiSaver offers a return above the current mortgage rate, you would want to contribute more to your KiwiSaver than paying off your mortgage. 

For example, say you received $1,000 and you want to maximise the use of this amount. 

Assuming you are in a growth fund with an expected return of 6%, putting this amount into your KiwiSaver account should give you about $60 in returns within a year.

However, if the $1,000 is used towards your mortgage, and say your home loan rate is 4%; then it would mean you are shrinking your annual interest payments by only $40. This means that in this situation, you are better off investing your $1,000 in KiwiSaver as the returns you receive will be higher than the interest you will pay on your mortgage.

This was an overly simplified example. In real life, we understand that there are many more factors that go into making financial decisions.

Pros and Cons: KiwiSaver vs Mortgage

There are also psychological factors that contribute to the decision between your KiwiSaver and mortgage. Most of us have aims of being able to relax in retirement with a mortgage-free home. This may lead us to draw the conclusion that the faster our mortgage is paid off, the better. 

Another pro of paying off your mortgage faster is that you are also reducing the future interest you need to pay. If you don’t make mortgage payments now, you take the risk of your future mortgage rate being higher than what you are paying now. This makes the comparison between current mortgage rates and KiwiSaver returns to not hold true.

Other important factors to consider are the extra benefits that come with investing in KiwiSaver. These benefits include the government contributions of up to $521 a year, your employer contributions, and the compounding interest.

The government contributes 50 cents to every dollar you invest in KiwiSaver up to a maximum of $521.43 each year. This means that if you contribute $1,042.86 or more per year, you are able to receive the maximum annual government contribution. Even if you want to prioritise your mortgage payments; if possible, a good move would be to put enough money into KiwiSaver to receive these extra benefits.

Additionally, when you invest in KiwiSaver, you receive compound interest on your investment. What this means is that you are receiving interest on interest earned in previous periods as well as on the principal amount. This becomes even more important with long term investment as you receive interest on interest over a long period of time.

The Final Decision?

We can compare KiwiSaver and mortgage rates, but at the end of the day, KiwiSaver decisions cannot be made in isolation and you need to take into account your other financial commitments. 

Here at National Capital, we have professional financial advisors who consider your financial and retirement goals when helping you come up with a KiwiSaver strategy. Although figuring out how much to contribute to your KiwiSaver is complicated, here at National Capital, we include you in your decision-making process.

With a KiwiSaver strategy that suits your personal goals and circumstances, you are able to get the most out of your money. To take the first step in having a KiwiSaver strategy that is personalised for you, complete our KiwiSaver HealthCheck.

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Need a personalised KiwiSaver strategy? Take the KiwiSaver HealthCheck now

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