October 30, 2014
Sustained low interest rates have certainly made paying off the mortgage easier in recent years. But they have also given a boost to a combined super/mortgage strategy.
Those in their 50’s often ask if they should accelerate repaying the home loan, or direct spare funds to super. Actually, it’s best to do both.
However with interest rates as low as they are at the moment, it can pay to reduce your mortgage and put as much as you can into super.
There is the case to change to interest only repayments and the amount of difference between P&I and the interest only repayments be channelled directly into your superannuation; however, this strategy requires diligence and strength not to use the surplus from lower repayments towards normal living expenses.
Therefore, another strategy is: when you’ve built up “available surplus” in your home loan, do a number of things (a) pay out your high interest credit card if applicable (b) redraw the “surplus” and put it directly onto your superannuation (c) do both (d) do all 3 strategies plus keep funds in your linked offset account (e) even the strategy to use the "equity" in your home to purchase an Investment property
If you use the strategy of using your “available surplus” as extra superannuation deposits, this will build up, and when you’ve turned 60 and can access your super tax free, you can access enough to pay out your home loan. While funds are in your superannuation, money will have been earning at a compound rate and are invested in a low-tax environment.
Your strategy is three-fold – paying off your home loan faster; keeping zero interest repayments on your credit card; extra funds into your super so when you retire you may have the extra funds to pay off your home loan.
Note always to seek professional advice to help fine tune wealth strategies to make the most of your situation – contact us on (03) 9646 7973 for Financial Planning Advice (our Financial Planner provides first consultation free of charge).