Pay off Mortgage Vs Personal Super Contributions

Discussion in 'Superannuation, SMSF & Personal Insurance' started by William Oor, 1st Jan, 2022.

Join Australia's most dynamic and respected property investment community
  1. William Oor

    William Oor Active Member

    Joined:
    29th Dec, 2021
    Posts:
    44
    Location:
    Perth, WA
    Interested to hear thoughts on strategy explained in this video

     
    William Oor, 1st Jan, 2022
    #1
  2. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,227
    Location:
    Sydney or NSW or Australia
    I'd be inclined to agree *

    Sounds like the Noom of finance "...you are conditioned to pay off your mortgage..."


    * subject to T&C


    - Mortgage repayments aren't optional if you have a loan (doesn't matter if it's P&I or IO, you still need to meet the minimum obligation)
    - The same applies to rent (if there's no loan), you still need a roof over your head
    - This leaves less income to salary sacrifice & to contribute to super.
     
    Last edited: 1st Jan, 2022
    Scott No Mates, 1st Jan, 2022
    #2
    William Oor likes this.
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,638
    Location:
    Gold Coast (Australia Wide)
    What happens where interest rates rise and we are now stuck with a higher rate cost which compounds over time ?

    For many, and active debt recycle strategy may provide a better outcome - higher risk though if markets tank.

    ta
    rolf
     
    Rolf Latham, 1st Jan, 2022
    #3
    William Oor likes this.
  4. William Oor

    William Oor Active Member

    Joined:
    29th Dec, 2021
    Posts:
    44
    Location:
    Perth, WA
    Fair point Rolf.
    I guess the strategy relies on timing, and assumption that super will perform better than the interest rates.

    He did mention that the strategy is recommended for mid 50 year Olds (which I am).

    So my thoughts are, pay mortgage at required repayments Vs overpaying mortgage.

    I can access super at 60y (according to "preservation age" Withdrawing and using your super

    At that point if interest rates on home are up, pay into / off mortgage.
     
    William Oor, 1st Jan, 2022
    #4
  5. Noobieboy

    Noobieboy Well-Known Member

    Joined:
    10th Aug, 2017
    Posts:
    2,172
    Location:
    Utopia
    I would agree with this guy, especially when it comes to the example provided. $350K in debt and 34% marginal rate. It is almost a no brainer to me which way to go. Super is a great vehicle for wealth. Good funds (Australiansuper and similar) returned 24%+ on growth portfolio last FY. Couple that with the tax benefits and its very hard to argue against his point.

    One thing to consider is that people tend to have irrational stress associated with debt. So if paying debt helps people sleep at night at the expense of much better return in super, then so be it.
     
    Noobieboy, 1st Jan, 2022
    #5
    William Oor likes this.
  6. Mark F

    Mark F Well-Known Member

    Joined:
    29th Jan, 2020
    Posts:
    1,033
    Location:
    Canberra
    It really is a balancing act between having a buffer to the mortgage to cover misfortune and maximising returns that will not be accessible for many years. My own thoughts are to build up a buffer of about 12 months living expenses in an offset and then increase super contributions to ensure you reach the pension cap (currently $1.7M but will increase over time). Each year reconsider the split between mortgage over payment and super contributions.
     
    Mark F, 1st Jan, 2022
    #6
    William Oor likes this.
Buy High Growth Property WITHOUT Buyers Agents!