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

Paying off your mortgage is a dream for many homeowners. After years of making payments, wouldn’t it be nice to finally own your home outright and not have a monthly mortgage bill?

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 If you are unable to meet reasonable living expenses and are at risk of losing your home you may qualify to withdraw super on compassionate grounds.

• 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 situations, strict eligibility criteria apply and you will need to provide evidence to your super fund. You can generally only withdraw 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 is your retirement lifestyle goal? Will you have enough super remaining to maintain your desired lifestyle?

• 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.