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Thinking about your mortgage situation?

Should you pay off your mortgage?

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. 

So, if you have less assessable assets you get more of the pension possibly up to the maximum pension amount.

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. 
  • 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.

 

 

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).

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