Should I Pay Down My Mortgage or Contribute to KiwiSaver?
It’s one of the most common financial questions we hear: “I’ve got some extra income—should I use it to pay down my mortgage, or put it into my KiwiSaver?”
At face value, both options are good for your long-term financial future. But which one is better depends on the numbers, your personal goals, and your stage of life. Let’s dig in.
Mortgage Interest vs KiwiSaver Returns
To start, compare the interest you’re paying on your mortgage to the returns you expect from your KiwiSaver fund.
As of early 2025, average mortgage rates are sitting around 5%. By comparison, KiwiSaver returns over the past 10 years have averaged:
4.2% for Conservative funds (3.02% after a 28% PIR rate)
9.3% for Growth funds (6.69% after a 28% PIR rate)
That means $1,000 put towards your mortgage could save you $50 in interest annually, while the same amount in a Growth KiwiSaver fund might earn around $66.90.
So, purely from a numbers perspective, your mortgage is costing you more than KiwiSaver is earning—at the moment.
What About Over the Long Term?
Mortgage rates will rise and fall over time, and so will investment returns. To get a clearer picture, let’s consider the average over a 30-year time horizon:
Mortgage rates: likely to average 6-7%
Growth KiwiSaver returns (after tax): ~5.5%
They’re pretty close. So is there a clear winner? Not necessarily.
Should I Stop KiwiSaver to Focus on the Mortgage?
If you don’t like the idea of having your savings locked away until age 65, you might be tempted to pause your KiwiSaver contributions and focus on your mortgage.
But in most cases, that’s a bad idea—especially if you’re employed and receiving employer contributions.
Here’s why:
Member Tax Credit
For every dollar you contribute to KiwiSaver (up to $1,042.86 per year), the Government gives you 50 cents. That’s a maximum of $521.43 free money every year. If you skip KiwiSaver, you miss out.
Employer Contributions
If your employer matches your 3% contributions, that’s essentially a 100% return on your investment (minus tax). For someone earning $50,000, that’s an extra $1,200 in your KiwiSaver every year.
By comparison, putting that $1,500 (3% of your income) onto your mortgage might only save you about $100 in interest. The KiwiSaver option is clearly more valuable.
KiwiSaver Is Locked In. Your Mortgage Isn’t.
This is an important distinction. KiwiSaver can’t be accessed until you retire (or in rare cases, under strict financial hardship criteria). On the other hand, paying down your mortgage builds equity you can potentially redraw later—for renovations, investment, or emergencies.
So if flexibility is important to you, putting spare funds onto your mortgage might make more sense. Just be honest about whether that equity will stay in the property—or be frittered away on spontaneous spending.
Investment Properties and Leveraging Your Equity
Here’s where things get more interesting.
Let’s say you’ve paid off your own home and now have an investment property with a tax-deductible mortgage. Should you still pay that mortgage down, or invest in KiwiSaver?
Mortgage: Tax-Deductible Interest
The effective cost of your mortgage may be lower than it appears. At a 5% interest rate and a 30% tax bracket, you get about 2% back in tax deductions. So the real cost of the loan is around 3%.
KiwiSaver: Net Return
In a Growth KiwiSaver fund, your after-tax return could be around 5.5%. That makes KiwiSaver the better bet, on paper.
But remember: once the money goes into KiwiSaver, it’s locked away. If your goal is to buy more investment properties, you’ll want that money accessible.
Using Equity to Grow Your Portfolio
Another key advantage of paying down a mortgage is leverage. If you reduce the debt on your investment property, you build equity. That equity can then be used as a deposit to buy more properties.
Let’s say you have $30,000. You could:
Put it into KiwiSaver and earn ~5.5% (but can’t touch it until 65)
Or, use it to pay down your mortgage, then borrow against it to buy a $100,000 property (assuming a 30% deposit)
A 5% capital gain on $100,000 = $5,000
A 5.5% return on $30,000 = $1,650
This is why many investors prioritise paying down mortgage debt first—it opens doors to greater future gains through leveraged property purchases.
Don’t Forget: Mortgage Structure Matters
If you’re considering making lump sum payments onto your mortgage, check how your loan is structured. Some banks charge fees or penalties for early repayments, especially on fixed-term loans.
You might want to set up a portion of your mortgage on a floating or offset loan to allow flexibility with extra repayments.
Still Have a Personal (Non-Deductible) Mortgage?
If you haven’t yet paid off your own home, you’re still dealing with non-tax-deductible interest. That makes mortgage repayment more appealing.
A dollar saved on your personal mortgage is worth more than a dollar saved on your investment property mortgage because:
You’ve already paid income tax to earn that dollar
There are no tax benefits on personal mortgage interest
You get full value from each extra payment
So if you’re choosing between paying extra on your home mortgage or contributing to KiwiSaver, the right answer may depend on how close you are to retirement—and whether your employer is contributing to KiwiSaver.
Key Questions to Ask Yourself
Still unsure which option suits you best? Ask yourself:
Does your employer match KiwiSaver contributions?
If yes, prioritise up to the matching amount. It’s essentially free money.Are you still paying off your own home?
Paying this down builds accessible equity and eliminates non-deductible interest.Do you plan to invest in more property?
You’ll need equity—so keeping funds out of KiwiSaver could be a better strategy.How far away is your retirement?
If it’s 20+ years away, KiwiSaver offers excellent long-term returns. But if it’s closer, paying off your mortgage might give you more flexibility.
It’s Not Either/Or
In many cases, the smartest move is to do a bit of both.
Contribute enough to KiwiSaver to get the Member Tax Credit and employer contributions
Use any surplus to pay down your mortgage or build savings for an investment property
This balanced approach helps you grow retirement savings and reduce your debt over time.
Still unsure? Speak with a mortgage adviser or financial planner. They can help you run the numbers based on your actual income, debt, KiwiSaver balance, and goals.
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