If you owe money on your home loan, it may feel tempting to use your superannuation savings to pay it off. While it can seem like a quick way to pay off the mortgage, using your super to pay off your home loan isn’t as straightforward as it sounds.
Keep reading to find out whether you’re able to pay off your mortgage debt using your super fund.
Can I use super to pay off mortgage debt?
Due to your superannuation benefits being preserved until you meet a condition of release, accessing your super funds to pay off your mortgage isn’t as simple as requesting to withdraw super monies from your account.
The conditions of release to access your superannuation include the following:
- – Turning age 65
- – Reaching your preservation age
- – Ceasing an employment arrangement on or after the age of 60
- – On compassionate grounds or at the diagnosis of a terminal medication condition
What if I’m experiencing severe financial hardship and can’t meet my mortgage repayments?
Some special conditions allow you to access an early release of your super to meet mortgage repayments or council rates in arrears. The national debt helpline may be able to help you if you find yourself in temporary financial hardship and need early access of your funds.
If you’re nowhere near retirement age and not in financial hardship, accessing your super balance as a lump sum to pay down your mortgage may be out of reach — that’s not to say that you’re unable to use your super towards a mortgage.
Using your super to save for a home loan
As you know, your superannuation comes with strict preservation rules as super is designed to be for the sole purpose of saving retirement funds. However, if you’re saving for your first home, the Government’s First Home Super Saver Scheme (FHSSS) may be a viable strategy for your particular situation.
The main benefit of the FHSS Scheme is that it allows you to make voluntary concessional contributions (which are before tax) into your super account to save for your first home. Under the scheme, you can apply for a maximum of $15,000 per financial year (up to $50,000 across all years) of your eligible contributions made into your superannuation fund, to be released to you.
The key advantage of this strategy is that you can effectively save more of your income towards your home deposit than you would have if you were to pay tax at your marginal tax rate on the funds. In addition, you will also receive an amount of the investment earnings that are related to those contributions.
There are strict eligibility criteria to be met, however, this is one way to use super towards a mortgage.
Invest in property within super to pay off your property!
Superannuation is a fantastic vehicle to help save towards living a comfortable retirement. Holding a self-managed super fund (SMSF) allows you greater control and flexibility over where and how your funds are invested. One of the differentiating factors to SMSFs compared to APRA-regulated funds is that you can invest directly into an investment property within your super fund.
Use rent payments to make your loan repayments
Home loan interest rates have been on the rise over recent months. The benefit of an investment property inside your SMSF is that you can use the rental payments towards your loan repayments. Once you decide to retire, you may be able to sell the property, or if you own the property outright, those rental payments can help support your retirement income through an income stream!
What you need to know about property investment inside super
While purchasing an investment property inside your SMSF can help you attract growth potential and income yield, there are some important rules around SMSF property investment.
For example, you cannot live in the property you purchase, nor can a related party to any of the SMSF members. This means you cannot use your SMSF to buy a family home.
The benefits of retiring with a fully repaid mortgage
Most retirees set one of their retirement goals to retire with their mortgage wholly repaid. The benefits of having no money owing on your home once you close the door on your working life can include:
- – Requiring less income to fund retirement comfortably
- – Remaining immune to interest rate rises
- – Less financial stress
- – And better age pension entitlements such as higher age pension payments (provided you otherwise pass the income and assets test)
- – Being more asset rich, which could potentially benefit future generations if you’re leaving your home in your estate, especially with higher property prices
How to boost your retirement savings through SMSF property investment
Property is one of the many lucrative investment options that can help boost your superannuation balance (amongst other assets). Retiring with enough money to pay debt off once your retirement takes off takes prudent investment decisions — let SMSF Loan Experts help you take more control of your final nest egg balance.
Contact the team today to learn how purchasing property within your SMSF can help you live a retirement free of mortgage debt.