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?
Let’s consider the case of Jenny who just missed out on Age Pension qualification – as a single home owner her assets were above the limit. Part of her assets included $145,000 in a term deposit (TD). This money was earning interest of 1.5% per annum. Jenny decided to look at the option of using $100,000 to pay off her mortgage. This had three effects:
1. Jenny forewent the $1500 pa interest earned from the TD.
2. But she saved $3250 pa in mortgage interest – net gain $1750.
3. Most importantly, she then qualified for a modest part Age Pension ($300 per fortnight, or $7800 per annum, including supplements) and the Pensioners Concession Card, worth an extra $2-3000 per annum.
Jenny’s income is well ahead of where she was before paying off her mortgage. But taking the decision to pay down a mortgage is always a trade-off as you can lose access to the ready cash redraw in your mortgage and the cash bank account. Read more about Jenny’s situation and decision.
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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).
Booking a consultation with our financial adviser will enable you to look at a number of options.
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Learn more about what this consultation offers and if it’s right for you
In our work with thousands of Australians we have found most are able to make some simple changes that can improve their financial circumstances. Changes that can result in them getting more Government entitlements, ensuring they take advantage of the often complex rules surrounding super or gaining confidence with their retirement plans.
However, we also know it can sometimes be confusing and difficult to get started. Which is why we are offering limited opportunities to have a quick obligation free 10 minute call with one of our Advisers.
Please note as these calls are a free service, they are only available to callers within Australia. You are welcome to call us on our international number +61 2 8067 9222 and our dedicated customer care team will be able to answer any questions you may have.
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