One in five of the people we see still have a mortgage on their home. Many of them also have money in the bank, super or some other investments. For part pensioners this can sometimes be costly. This is because most part pensioners, and those that aren’t eligible for the Age Pension, are impacted by the assets test. The way this works is that for every extra $1000 you have in assets (that exceed the minimum assets test threshold) your Age Pension declines by $3 per fortnight or $78 per year. A couple with $100,000 less in assets could get $7,800 per year more in Age Pension – a big difference!
So, if you have less assessable assets you get more of the pension possibly up to the maximum pension amount.
Your home is not an assessable asset
It’s important to remember that your home is not included as an asset in the assets test. One implication of this is that Centrelink doesn’t take into account the mortgage that you have against your home, even if it is an investment loan.
In simple terms if you had $200,000 in the bank and a $200,000 mortgage, Centrelink will calculate that you have $200,000 in financial assets and reduce your entitlements accordingly. If you used the $200,000 to pay off the mortgage then you will have $0 in financial assets and you will most likely get more Age Pension (up to $15,600 more per annum for a couple).
So should you pay it off?
People that use their savings or investments to reduce or pay off their mortgage are likely to benefit in a couple of ways:
- Their outgoings will decrease as they don’t have mortgage payments
- Their Age Pension payments will most likely increase as their assets will be less
On the flip side, their investments will be reduced so depending on their circumstances they won’t always be better off. For instance:
- If the earnings on their investment exceed the cost of the mortgage and the foregone pension combined.This would be uncommon but could occur.
- Also some people might like the ready access to their cash and are willing to give up a little bit of the Age Pension to have that flexibility.
Our view is that most people would be better off paying off their mortgage but not everyone will be. That’s why we would always recommend getting some financial advice before making a decision such as this.
If you want to see how paying off your mortgage might affect your entitlements you can always check by using our eligibility calculator. You can also book a consultation with a Retirement Essentials financial adviser to discuss your options.
Note: This blog is about the mortgage on the family home and is not relevant to investment property and the mortgage on that property
Hi Teresa, thank you for seeking further assistance! If you have an investment property and the mortgage is secured against that property (not your primary residence) then Centrelink will assess it’s value as being the sale value minus the mortgage. Please note this only applies to investments properties (not primary residences as they are exempt) and only if the mortgage is secured against that investment property (not counted if it is secured against the primary residence.
There are advantages in paying off your mortgage. However, one downside to paying off your mortgage which you have not mentioned is that it is almost impossible to get a mortgage as a retired person. So if you wish to buy a property you cannot, as you cannot get a mortgage.
I have $157,000 in super and a mortgage of $30,000 should I pay I out the mortgage?
Hi Frank, great question! We’ll be happy to go through the pros, cons and long term impacts of both scenarios with you via our consultation service. To book in a day/time please CLICK HERE.
I am 76 years on a pension. My home valued $850.000 ( In Brisbane ) I owe NAB $90,000. ,Monthly re payments $508,00. Jumping to a higher rate
11th February to $710.00 per month. I have $45.000 in a CBA goal saver account, which pays me $180.00. Interest a month. What to do.Please
NAB tells if I pay the $45.000. off the $90.000 monthly re payments
@ $360.00 per month please advise
We are considering cashing in some shares and paying out our mortgage. We do not receive any pension. However, this may change in a few years.
In the last few years our profits on share investing exceed the cashflow of repayments on the mortgage, so we consider keeping the mortgage and investing in the stock market is a sensible strategy.
We are carefully monitoring our investment return compared to the costs of keeping the mortgage, and if and when it becomes a loss, then we will pay out our mortgage.
We enjoy the challenge of stock market investing, but if this changes, and it becomes a burden, then we can sell up and pay out the mortgage. We are both 78.