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.
We would love to hear your thoughts on this topic. You can comment below.
Note: This blog is about the mortgage on the family home and is not relevant to investment property and the mortgage on that property
How much do we have to pay if we apply thru your est for age pension
Hi Michel. We charge $396 for our Age Pension application service.
Hi my name is Michael and did write to you before my question is on 31 July I will be 66 years old. And would like to know when to start my application for age pension and what enquiries you need from me to assist my application. How i communicate with you seems that we are in different states
Hi Michael, thank you for reaching out. We will contact you privately via your email address with the best next steps to apply.
Thank you kindly.
Hi, I am 60 and my husband is 63 and we have a mortgage. We will continue working and I want to start a transition to retirement account and start getting payments from super to add to the mortgage payments until we reach 65 when we can get a lump sum and pay it off. I believe we do not have to declare the super income and pay tax as we are over 60 is that cottect? In your opinion does this strategy make sense?
Thanks
Hi Julie, great to hear you are thinking and planning ahead! We would be happy to review the pros/cons of your current strategy and see if this is the best option for you or if there is another way. To do so you would need to book one of our “Understanding More About Super” consultations so that we can fully understand and advise on your situation.
Hi can you please tell me if we have an investment property with a mortgage against it , when doing the asset test will it be assessed as the full value or the value less what is still owing ?
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.