Grow your super

How can you help your super to thrive?

Mortgages and super

Buying a home

Buying property is a big financial decision and there are many issues to take into account beyond the obvious considerations of saving a deposit and budgeting for mortgage repayments and property maintenance.

Insuring your ability to pay the mortgage

You should consider how you would cover the mortgage and associated costs if you can longer work. There are a range of insurance options offered by super funds and other institutions that can cover you for illness, injury, loss of income or death.

If something was to happen and you could no longer pay the mortgage, the bank cannot take money from your superannuation account to recover the debt.

Your home is not a retirement plan

While it may be your biggest asset, your home should not be counted on to fund your retirement. For starters, most retirement projections showing ‘income required’ to live on in retirement, assume you own your own home outright. Also, the home where you live does not count towards the asset test to determine eligibility for the Age Pension.

While in some circumstances, downsizing your home to something smaller and less expensive at retirement may free up some capital, it is not advisable to count on it. Another path some people consider is a ‘reverse mortgage’ to fund their retirement. This is not a decision to be taken lightly and again, should not be seen as a retirement plan.

First Home Super Saver Scheme

If you have never owned property in Australia, you may be eligible to use the First Home Super Saver Scheme (FHSS scheme) to help save for your first home.

The scheme allows you to make voluntary contributions (both before-tax concessional and after-tax non-concessional) into your super fund to save for your first home. If you meet the eligibility requirements, you can have these voluntary contributions released, up to a limit, to help you purchase your first home.

The scheme is managed by the Australian Taxation Office (ATO) and there are a number of important conditions and requirements you need to be aware of if you plan to use it. These include:

  • you will need to meet strict eligibility conditions.
  • you can’t use the scheme to release any compulsory super contributions made by your employer (some other types of contributions are also excluded).
  • you must apply to the ATO and receive approval before you sign a contract to purchase a property, then apply to the ATO for the release of your super and make the purchase. Time limits apply to every step of the process.
  • you can apply to have a maximum of $15,000 of your eligible voluntary contributions from any one financial year released, up to a total of $50,000 contributions across all years (you will also receive the earnings that relate to those contributions).
  • the home you purchase or construct must be located in Australia.

To use the scheme, you must satisfy all of these eligibility conditions – you must:

  • be 18 years old or older when you apply to the ATO to use the scheme or to release your super (however you can start making your voluntary contributions before you turn 18).
  • never have owned property in Australia (although some financial hardship exemptions apply) – this includes an investment property or vacant land.
  • intend to live in the property you buy as soon as practicable and for at least 6 months within the first 12 months you own it.
  • not have previously made a release request under the FHSS scheme.

If you end up not accessing your contributions under the FHSS scheme, they will remain part of your super interest.

If you plan to use the scheme, before you start saving you should:

  • check that your super fund(s) will release the money (note that you can’t make contributions for FHSS scheme purposes to a defined benefit fund).
  • ask your fund about any fees, charges and insurance implications that may apply.
  • check that your super fund has your current contact details, so they exactly match the ATO’s records for you.

You should also be aware that using the FHSS scheme will have a tax impact for the year in which you make the request to release – you will receive a payment summary and you will need to include both the assessable and tax-withheld amounts in your tax return. The ATO will withhold tax from the amount of super you withdraw under the FHSS scheme, before it is paid to you, but the final tax amount may be adjusted after you lodge your tax return.

For more information about the FHSS scheme, go to the ATO website.

Accessing your super for mortgage repayments

People experiencing severe financial hardship may be able to access part of their super early to assist in meeting living expenses including mortgage payments. Alternatively, you may be able to make a ‘compassionate grounds’ withdrawal of super to prevent your lender forcing the sale of your home if you are in arrears on your mortgage. Accessing your super early is a detailed process, subject to strict conditions, and does not happen immediately.

The Australian Taxation Office has more information on the criteria for accessing super early. Or you can contact your fund.

Investing in property through super

As a general rule, you cannot take money out of your super fund to buy property. For those with a self-managed superannuation fund (SMSF), there are some special rules that allow money in your SMSF to be used to invest in property: but this is the super fund investing, not you as an individual. In other words, you cannot use money from your superannuation to buy a home for you or a family member to live in.