Paying your mortgage with your super

Can I pay off my mortgage with my super?

Superannuation is subject to special access rules called preservation. What this means is that you cannot access your super benefits until you retire after a certain age, or you satisfy another condition of release such as permanent disability or severe financial hardship.

If an individual is struggling to pay a mortgage, and the bank is about to foreclose on the property, then it may be possible to access super benefits on ‘compassionate grounds’. The Department of Human Services (DHS) administers this process, according to strict criteria.

DHS may release your super for the purposes of ‘mortgage assistance’ if releasing the money will “prevent your home from being sold by the lender with whom you have the home’s mortgage”.

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The grounds for early release do not include payment of rent, or a mortgage payment:

  • where they may be future difficulty in paying, but the payments are not yet behind
  • for payments that are behind, but the bank/lender has not yet decided to sell the property
  • for a property or debt owned by one of your children or other family members or dependents
  • for an investment property.

What other strategies are available to use my super to pay off my mortgage?

One of the questions I often get asked by clients is whether it’s best to pay extra off their mortgage or put the extra savings into super? The answer is, it depends on how much spare cash flow you have and whether you are contributing into super pre-tax or after-tax. As an example, a person with a $150,000 mortgage currently paying $1,300 a month will end up paying off the loan in 16 years time, assuming a 7% interest rate and paying principle and interest. If they were able to pay an additional $700 a month onto the mortgage from their savings, it would be paid off 7 years faster and save them $105,000 in interest. Not bad!

If they used the same amount of savings to put into their super as a pre-tax contribution (salary sacrifice), they’d save an additional $19,000 over the 7 years, assuming an average super return of 6% p.a. and a marginal tax rate of 31.5%. That’s a $2,700 a year saving – even better than paying extra off the mortgage! For people on the higher tax brackets (over $80,000) the savings are even greater!

So if your mortgage is under control and you’re currently making extra payments from your savings, and are within 15 years of retirement, then this strategy may be for you. If you want to know more please make a time to see me!