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Can You Use Super to Pay Off Your Mortgage? Everything You Need to Know

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You’ve got some super and you’ve got a mortgage. Your super is yours and you want to pay-off your mortgage.

Paying off your mortgage is a dream for many homeowners. It must be nice to finally own your home and not have to pay a mortgage every month after years of payments.

If you have money in superannuation, you may be wondering if you can use it to pay off your remaining mortgage balance. This is a complex topic, but the short answer is yes, you may be able to under certain circumstances

When Can You Access Your Super to Pay Off Your Mortgage?

There are rules around when and how you can access your super. Generally, you cannot withdraw super until you reach your preservation age and retire. Your preservation age depends on when you were born:

  • If you were born before July 1960, your preservation age is 55.
  • If you were born between July 1960 and June 1961, your preservation age is 56.
  • If you were born between July 1961 and June 1962, your preservation age is 57.
  • If you were born between July 1962 and June 1963, your preservation age is 58.
  • If you were born between July 1963 and June 1964, your preservation age is 59.
  • If you were born after June 1964, your preservation age is 60.

Once you reach preservation age and retire, you can access your super as a lump sum or as a pension At this point, you can use your super payout to pay off your outstanding mortgage.

There are limited circumstances where you can access your super early to pay off your mortgage:

  • Severe financial hardship: You may be able to withdraw your super on compassionate grounds if you can’t pay your reasonable living costs and are about to lose your home.

  • Terminal illness: If you have a terminal medical condition that will likely result in death within 24 months, you can access your super early.

  • Permanent incapacity: If you are permanently unable to work due to illness or injury, you may qualify for early access.

In these cases, you must meet strict requirements to be eligible, and you will need to show proof to your super fund. Most of the time, you can only take out enough super to cover the allowed expense.

How to Use Your Super to Pay Off Your Mortgage

If you are eligible to withdraw super, you will need to apply to your super fund for release of funds. Here is the general process:

  • Contact your super fund and ask for their early release forms. Each fund will have their own process.
  • Complete the forms and provide supporting documentation as required. This may include evidence of financial hardship or medical reports.
  • Submit your forms to the super fund. The fund will assess your application and make a decision.
  • If approved, the super fund will deposit the amount into your nominated bank account or send you a check.
  • Use the super payout to make a lump sum payment on your mortgage. Contact your mortgage lender to find out how to do this.

One thing to keep in mind is that super withdrawn before age 60 is generally taxed, whereas withdrawals after 60 are tax-free. So if you access super early, you may have to pay tax.

Should You Use Your Super to Pay Off Your Mortgage?

Using your super to eliminate your mortgage faster is tempting. But before you do, weigh up the pros and cons:

Pros

  • Pay off your mortgage sooner and take years off the term
  • Reduce total interest paid over the life of the loan
  • Own your home outright
  • Peace of mind and housing security

Cons

  • Reduced retirement savings
  • Paying lump sum tax if under 60
  • Risk of not having enough super later in life
  • Lost earnings and growth on withdrawn super amount

Some key things to consider:

  • How close are you to retirement age? The closer you are to preservation age, the less impact on your super.

  • What are the interest rates on your mortgage versus super returns? If your mortgage rate is higher, benefit may be greater.

  • What kind of lifestyle do you want to have in retirement? Will you have enough money in your super to keep living the way you want to?

  • Are you sacrificing growth of your super? Compound growth on super over time can be significant.

  • Are there other ways to pay off your mortgage faster? For example, making extra repayments using your income.

Getting Advice

Deciding whether to access your super early is complex. Speaking to a financial planner or advisor can help you understand the full financial impact specific to your situation. They can run calculations and projections to see if it makes sense in your circumstances.

At the end of the day, there is no one-size-fits-all answer. You need to look at your entire financial position. While using super to eliminate your mortgage may speed up home ownership, it may come at a cost to your retirement lifestyle. Get professional advice and carefully weigh up whether it’s the right strategy for you.

can you use super to pay off mortgage

What is My Superannuation Preservation Age

When you reach your “preservation age,” you can usually start taking money out of your superannuation. This is true whether you are still working or have retired. When you reach your preservation age, the amount of super you can access will depend on whether you are still working or retired and have no plans to go back to work.

Your superannuation preservation age is age 60.

If you’re old enough, you can at least get money from your super through a transition to retirement income stream. But, you may also be eligible to access your total account balance if you have the superannuation definition of retirement.

A transition to retirement (TTR) income stream allows you to receive an income of up to 10% of your TTR pension balance each financial year.

You can then use this TTR pension income to reduce or pay off your mortgage.

You should be mindful, however, of any income tax on TTR pension payments, if you receive such payments while under age 60. You also need to be aware of the risks of completely closing an accumulation account to start a TTR pension.

If you:

  • You must be at least 60 years old, have retired, and have no plans to work full-time or part-time again; or
  • Had a job end after turning 60 years old; or

Then you have met the superannuation definition of retirement and will have full access to your super balance.

Alternatively, if you have reached age 65, you will have full, tax-free access to your super.

In any of these instances, you can use your super to pay off your mortgage.

Can I Use Super to Pay Off My Mortgage?

You can use your super to pay off your mortgage, provided you are eligible to access your super.

There are a number of ways to access your super. In some instances you will have full access to your super and other times you will have partial access to your super. It all depends on your situation. In most cases it will depend on your age and whether you are still working or retired.

Is using your Super to pay your mortgage a good idea? | ABC News

FAQ

What is the 2 rule for paying off a mortgage?

The 2% rule for a mortgage payoff involves refinancing your mortgage. If you want to refinance, you get a new loan to pay off your old one, ideally one with a lower interest rate. The 2% rule states that you should aim for a new refinanced rate that is 2% lower than your current rate on the existing mortgage.

How to pay off a $400,000 mortgage in 5 years?

Here are six real things you can do to pay off your mortgage faster, pay less interest, and shorten the length of your loan. Borrow less than you can afford. Save a large deposit. Increase your repayment frequency. Make higher repayments. Use an offset account. Avoid an interest-only loan.

Can I use my super to pay a loan?

You can pay off debt with your super, but only in certain situations, like when you’re in a lot of financial trouble or because you care about other people. Oct 31, 2024.

Can I use my retirement money to pay off my house?

You can take out a 401(k) loan and repay it with interest to avoid immediate tax penalties. If you run into financial troubles, you may be unable to repay the loan. On the other hand, a 401(k) withdrawal permanently reduces your retirement savings.

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