Can you use super to pay your mortgage?

It is possible to use the money in your superannuation fund to help cover the cost of your mortgage in specific circumstances, such as if you’re retiring or are in financial hardship. However, an early release of super to pay your mortgage can make a big difference to your retirement lifestyle in the long term. 

Can you use super to pay your mortgage when you retire?

Superannuation in Australia is intended to be accessed once you reach your preservation age and retire from the workforce. If you satisfy the conditions set by the Australian Taxation Office (ATO), you’ll be able to withdraw money from your super fund to use how you choose.

You could access your super as an income stream to supplement your age pension and help finance your lifestyle in retirement. However, another option could be to withdraw part of your super balance as a lump sum to help clear outstanding debts, such as money still owing on your mortgage.

Choosing to use your super to pay your mortgage could affect your retirement lifestyle and budget. On one hand, clearing your mortgage debt means no more repayments or interest charges to consider in your household budget. On the other hand, making a lump sum withdrawal from your super fund to pay off your property could affect your pension, your taxes, and leave you with less money available in the fund to earn returns from investments that could help pay for your retirement lifestyle.

Because the exact effect on your finances could vary depending on your personal financial situation, as well as any changes to tax laws and super regulations, it’s generally recommended you consult a financial adviser before using your super to pay off your mortgage when you retire.

Can you access your super early to pay your mortgage?

Because superannuation in Australia is intended to help fund your retirement, Australians can only access their super early under exceptional circumstances. This can include making mortgage payments if you are in severe financial stress and at risk of losing your house.

The maximum amount you can withdraw from your super fund cannot exceed the sum of three months’ mortgage repayments and 12 months’ interest on the mortgage. You will need an official letter issued by your lender mentioning the amount you need to pay to keep your home. The letter should also mention your name as the primary borrower, your home address, and your mortgage account number. You’ll also need to prove that you live in the home by submitting a recent utility bill. You will have to apply for the super release within 30 days of receiving this letter.

According to the ATO, over $760 million in superannuation was released on compassionate grounds in the 2022-23 financial year. Of this money, $9.7 million was used to prevent foreclosure of a home:

Source: ATO

According to the National Debt Helpline, any super you withdraw early to cover the cost of mortgage repayments will be taxed, and the tax amount will be deducted from the lump sum.  If you are under 60 years old, tax of approximately 22% will be deducted.

It’s also important to remember that accessing your super early for any reason can have long-lasting consequences for your retirement, due to the effects of compound interest and investment returns over time. For example, RateCity research found that an Australian who withdrew $10,000 during the COVID-19 pandemic and $21,847 through the first home buyer early super access scheme could retire with up to $$69,369 less than if they’d left their super fund untouched.

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