“Its quiet, its peaceful, it has my garden, it has my piano, it has my dog,” she said.
Although the 45-year-old considers herself fortunate to have purchased a home, her situation has changed, and she is currently impoverished and depends on her superannuation to help pay her mortgage.
After working as a florist for 25 years, Ms. Dare purchased her two-bedroom home in the northern suburbs of Hobart five years ago.
However, a lifetime of 14 shingles episodes combined with a back injury have left her in excruciating pain and unable to work.
“On certain days, I need to call my father to ask for assistance getting out of bed,” she remarked.
Ms Dare has been able to access $10,000 a year from her superannuation to pay her mortgage.
“It is expected that my mortgage repayments will double, requiring me to dedicate 80% of my income to my mortgage,” she stated.
Even though Ms. Dare worries about her ability to pay her mortgage, she claimed that renting is not a cost-effective option.
Since 2019, Hobart has been among Australia’s most expensive capital cities to rent due to its less than 1% vacancy rate.
“I have several friends who are living in sheds and caravans with kids because they are unable to find rentals,” she remarked.
She declared that in order to stay in her house, she will continue to draw on her superpower for as long as she can.
“It makes much more sense for me to use it now that homelessness is looming.” “.
In the current difficult financial environment, a lot of Australians are looking into creative mortgage management strategies. Paying off house loans with superannuation funds is one strategy that has gained popularity. But this tactic has its own set of guidelines, things to think about, and possible dangers. This in-depth guide will explore the nuances of using super to pay off your mortgage, assisting you in making well-informed decisions regarding your future financial situation.
Eligibility for Early Super Release:
Accessing your superannuation before retirement is not a straightforward process. Generally, you can only tap into your super funds if you meet specific criteria:
- Reaching Preservation Age: You can access your super once you reach your preservation age, which falls between 55 and 60 years, depending on your birth year.
- Retirement: If you permanently retire, you can access your super regardless of your age.
- Termination of Employment: If you lose your job and are unable to find new employment, you may be eligible for early super release.
- Severe Financial Hardship: This category encompasses individuals facing dire financial circumstances, such as being unable to meet basic living expenses or facing foreclosure on their homes.
- Terminal Illness: If you are diagnosed with a terminal illness, you can access your super early to manage end-of-life expenses.
- Temporary or Permanent Incapacity: Individuals with a temporary or permanent disability preventing them from working can access their super funds early.
- First Home Super Saver Scheme (FHSS): This scheme allows first-time homebuyers to contribute up to $50,000 from their super towards their first home deposit.
- Self-Managed Super Fund (SMSF): Individuals with an SMSF have more flexibility in accessing their funds, including using them for property purchases.
Conditions for Super Release for Mortgage:
To use your super to pay off your mortgage you must meet one of the following conditions:
- Reaching your preservation age.
- Retiring permanently.
- Experiencing severe financial hardship.
- Being terminally ill.
- Being temporarily or permanently unable to work.
- Participating in the FHSS.
- Facing foreclosure or forced sale of your home.
Important Note: The COVID-19-related early superannuation release program ended on December 31, 2020.
Age-Based Eligibility:
Australian regulations typically mandate that a portion of your superannuation funds must remain preserved until you meet one of the following criteria:
- Cease employment at the age of 60.
- Retire permanently from the workforce, either at or after reaching your preservation age.
This effectively means that until you satisfy one of these release requirements, you are unable to access your superannuation funds.
Your preservation age depends on your year of birth. For those born before 1960, the preservation age is currently the lowest; they can access their super at age 55. Every generation after that must wait longer to access their preserved retirement funds.
Eligibility for Early Release of Super:
You may be able to get early access to your superannuation to pay off your mortgage if you are experiencing severe financial hardship. To be eligible, you must meet the following criteria:
- You must be unable to meet your reasonable living expenses and your mortgage repayments.
- You must have exhausted all other options for financial assistance, such as government benefits and borrowing from family or friends.
- You have to confirm that you have sufficient superannuation balance to cover the expense and withholding tax.
- Your superannuation fund allows early superannuation access.
In order to request early access to superannuation due to financial hardship or compassion, you must fill out an application and attach supporting documentation. Your superannuation fund will then assess your application and make a decision.
Applying for early release can be confusing because the process varies depending on the reason. The ATO handles compassionate grounds applications directly, which can be submitted online or on paper. However, severe financial hardship or terminal medical condition applications are managed by individual super funds, not the ATO.
How to Use Your Super to Pay Off Your Mortgage:
Once you’ve confirmed that you’re eligible to use your super to pay off your mortgage, there are a few different ways to go about it.
- Make a lump-sum payment. This can be a great way to reduce your mortgage balance and shorten the term of your loan.
- Use your superannuation to make regular mortgage repayments. This can help to reduce your monthly repayments and make your mortgage more manageable.
- Combine these two strategies. For example, you could make a lump-sum payment to reduce your mortgage balance and then use your superannuation to make regular mortgage repayments.
Other Ways to Use Super to Buy Property:
Beyond accessing your super early to pay off your mortgage, there are other ways to leverage your super to accelerate property ownership.
- First Home Super Saver Scheme (FHSS): This scheme allows first home buyers to salary sacrifice or make extra contributions and withdraw up to $50,000 from their superannuation to contribute to a deposit on their first home.
- Self-managed super fund (SMSF): An SMSF is a type of superannuation fund managed by the individual or trustee. This gives you more control over your investment options and may allow you to borrow money from the SMSF to buy a property.
Should You Use Your Super to Pay Off Your Mortgage?
If you are considering using your superannuation to pay off your mortgage early, it is important to weigh up the pros and cons carefully. You should also seek financial advice from a qualified professional.
What to Consider First:
- Tax implications: When you withdraw money from your superannuation early, you may have to pay tax on the amount you withdraw. The tax rate you pay will depend on your age and how much money you have in your superannuation. There are no special tax rates for early release of super based on severe financial hardship. You will be taxed at the normal super lump-sum rate of between 17 and 22 per cent unless you’re older than 60, in which case you generally won’t be taxed.
- Scams: There are scammers who target people who are considering withdrawing their superannuation early. They may offer to help you get early access to your superannuation or promise you high returns on your investment. It is important to be aware of these scams and to only deal with reputable financial advisors. The Australian Securities and Investments Commission (ASIC) maintains a register of financial advisors who provide advice on investments and superannuation.
- Long-term impact: Withdrawing money from your superannuation early can have a significant impact on your retirement savings. This is because you will have less time for your money to grow and compound.
Tips to Avoid Getting Scammed:
- Be wary of ‘too good to be true’ offers. Superannuation and tax ‘strategies’ to reduce your mortgage are often advertised on social media. These strategies should be carefully considered because they often involve hefty payments for educational seminars, for instance, and offers that seem too good to be true.
- Do your research. Check the ASIC’s website to see if the company or person you are dealing with is registered.
- Be careful what information you give out. Scammers may ask for your personal information, such as your bank account number or tax file number. Do not give out this information unless you are sure that the company or person you are dealing with is legitimate.
- Get an opinion from qualified financial educators and advisors. Accounting and financial planning associations are often a good place to educate yourself on topics such as the early release of superannuation.
Important Numbers to Know:
- The ATO cannot process applications for early release of super over the phone. However, they can assist you with the process by answering your questions about the application process on 13 10 20.
- If you need urgent advice on accessing your super, you can call the National Debt Helpline on 1800 007 007 on weekdays from 9:30am to 4:30pm.
- If you think you may have been super-scammed, contact ASIC on 1300 300 630.
Using your superannuation to pay off your mortgage can be a viable option for some individuals, but it’s crucial to understand the eligibility requirements, potential tax implications, and long-term consequences. Carefully weigh the pros and cons, seek professional financial advice, and consider alternative strategies before making a decision. Remember, your superannuation is primarily intended for retirement, so using it for your mortgage should be a well-informed and calculated choice.
How to use your super on your mortgage
Not everyone can access their superannuation early to pay a mortgage.
The rules to access it are:
- You are suffering severe financial hardship
- For humanitarian reasons (such as paying your house loan on time to avoid losing your house),
- You have a terminal illness
- You have a temporary or permanent incapacity to work
The Australian Tax Office released more than $570 million in superannuation for compassionate reasons last financial year.
Compassionate release of superannuation applications per financial year:
|
Financial year |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
|---|---|---|---|---|
|
Applications received |
53,700 |
59,900 |
45,200 |
56,300 |
|
Applications approved |
31,100 |
33,700 |
29,400 |
34,300 |
|
Individuals approved |
26,900 |
30,000 |
27,200 |
32,200 |
|
Amount approved |
$456.6m |
$523.2m |
$472.4m |
$573.1m |
Using super for mortgage a no-brainer with ‘no risk’
Property economist Cameron Murray takes the argument for accessing super early one step further.
“Ive proposed we unwind Australias superannuation system,” he said.
Mr Murray said accessing super to pay a mortgage is a no-brainer that had “no risk.”
“You’re exchanging ownership of one set of assets—like government bonds or BHP shares—for another asset—your home,” he stated.
“From a balance sheet perspective, its not really changing.
“We are aware that having your own home in retirement makes it easier to receive your pension,” he stated.
Mr Murray believes the superannuation system is flawed.
He remarked, “It makes you richer when you’re old and rich, and poorer when you’re young and poor.”
A Productivity Commission Report in 2019 found Australians spend more than $30 billion in superannuation fees every year.
It is estimated superannuation tax concessions will cost the Australian government $52. 5 billion this financial year, according to the Australia Institute.
“The tax breaks for super are so large that we could pay twice the age pension with the same budgetary effect,” Mr. Murray stated.
The federal government has revealed plans to limit tax benefits for individuals who own more than $3 million in real estate.
Currently, superannuation earnings are subject to up to 15% tax. For approximately 80,000 Australians, this tax will rise to 30% on the portion of their balance that exceeds $3 million.
There will be no change for Australians with superannuation balances of less than $3 million.