KiwiSaver contributions can provide high returns.

A homeowner with some extra cash, who wants to improve their financial position, is faced with a tricky question: is it better to reduce my home loan or contribute to KiwiSaver?

Usually, debt repayment is always a priority over investment. Paying off debt is a safe way to get a guaranteed improvement in your financial position; and often the interest rate you're paying on your debt is higher than what you're earning on your investments.

But when it comes to KiwiSaver versus your home loan, it's a bit more complex because KiwiSaver has some unique benefits.

Why KiwiSaver is special

If you stopped paying into your KiwiSaver account and instead put all that money into your home loan, you would pay off your mortgage faster. However, you would also miss out on the government contributions and potentially employer contributions, plus you'd miss the compounding returns over the time it takes to repay your home loan.

The team at Sorted1 has calculated that someone earning $50,000 and contributing 3% of their salary to a balanced KiwiSaver fund, with employer contributions too, is earning a 117% return over the year. Because of the employer contributions, that's a better rate of return than you could expect from any other legitimate investment or any debt repayment.

Making at least the minimum KiwiSaver contributions

Even if you're not an employee, contributing at least enough to qualify for the maximum government contribution each year is likely to provide a rate of return which outperforms the benefits of home loan repayment. For the first $1042.86 you contribute each year, the Government will also contribute $521.43. That's a 50% return on your money.

If you're already putting in enough to get the government contribution, any additional funds could be put toward debt repayment. The most cost-effective way to reduce debt is to repay the highest-interest loans first and make a plan to tackle the rest.

Balancing a low interest rate with potential investment gains

When the interest rate on your home loan is very low, your KiwiSaver fund (or another investment) may pay a much higher rate of return.

However, there are always risks and fees associated with investing which do not apply to repaying your home loan. You will need to weigh up the potential gains and risks of investing, compare them to debt repayment, and make a decision based on your personal financial plan.

Increasing your home loan repayments

If you're in a position to make additional payments on your mortgage, there are several ways to do it. You can make lump sum payments of any size onto any floating balance or set up an automatic payment to pay extra money onto your floating home loan balance each month.

With a fixed term home loan, your ability to repay your loan quickly is more limited – break fees may apply to large repayments. However, with a Westpac home loan, you can increase your regular repayments by up to 20% of your minimum repayment. Check the terms of your loan or contact one of our home loan specialists for more information.

Next steps.

Join now

Joining or transferring to the Westpac KiwiSaver Scheme.

Get started

Talk to a specialist

Get in touch to talk about KiwiSaver with an expert

Talk to us

Manage your home loan

Rollovers, repayments and reductions – keeping on top of your home loan.

Manage home loan

Things you should know.

1 References to non-Westpac websites are provided for your convenience only. Westpac accepts no responsibility for the availability or content of such websites. Neither BT Funds Management (NZ) Limited nor Westpac New Zealand Limited is associated with, or endorsed by Sorted.

BT Funds Management (NZ) Limited is the scheme provider and Westpac New Zealand Limited is the distributor, of the Westpac KiwiSaver Scheme (Scheme).

The information above is subject to changes to government policy and law, and changes to the Westpac KiwiSaver Scheme from time to time.

Investments made in the Scheme do not represent bank deposits or other liabilities of Westpac Banking Corporation ABN 33 007 457 141, Westpac New Zealand Limited or other members of the Westpac Group of companies. They are subject to investment and other risks, including possible delays in payment of withdrawal amounts in some circumstances, and loss of investment value, including principal invested. None of BT Funds Management (NZ) Limited (as manager), any member of the Westpac Group of companies, The New Zealand Guardian Trust Company Limited (as supervisor), or any director or nominee of any of those entities, or any other person guarantees the Scheme's performance, returns or repayment of capital.

For a copy of the Product Disclosure Statement or more information about the Scheme, contact any Westpac branch or call 0508 972 254 or from overseas +64 9 375 9978 (international toll charges apply). You can also download the Product Disclosure Statement.

The ratings issued by SuperRatings Pty Ltd ABN 95 100 192 283 AFSL 311880 (SuperRatings) for Westpac KiwiSaver Scheme, Gold  is as of 13 October 2020. SuperRatings does not guarantee the data or content contained herein to be accurate, complete or up-to-date, and it will not have any liability for its use or distribution. Ratings are not financial advice for the purposes of the Financial Markets Conduct Act 2013. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. SuperRatings uses objective criteria and receives a fee for publishing awards. Visit for ratings information and to access the full report. © 2021 SuperRatings. All rights reserved.