Repaying a home loan is a considerable financial responsibility for which you often need to start saving up funds beforehand. If you have a healthy super fund balance, you may be tempted to dip into it for making mortgage repayments.
However, you may only withdraw super for home loan repayments in specific circumstances. For instance, you could access your super early, on compassionate grounds, if your home loan lender has sent you a formal notice stating that your home will be repossessed if you don’t make a repayment. Alternatively, if you’ve made voluntary super contributions to save up for buying your first home, you can withdraw this amount if you meet the necessary conditions.
How does using super to pay off a home loan work?
You won’t be able to withdraw super to pay off your home loan, either in part or fully. However, the ATO allows people at risk of losing their homes to request an early release of super benefits for making mortgage repayments. You can only apply for withdrawing super if you don’t have any other means of making repayments. Further, you should be living in the home covered by a mortgage you’ve taken out. Most crucially, the mortgage lender must have informed you in writing that you risk foreclosure if you don’t make a repayment soon. If you meet all of these conditions, you may be able to withdraw enough from your super to stop the lender from repossessing your home.
It’s worth remembering that 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.
When can I use my super for a home loan?
The First Home Super Saver Scheme (FHSSS) allows Aussies to withdraw and use up to $30,000 worth of super, which can be used towards the home loan deposit or a repayment. However, you must have made personal super contributions equivalent to that amount before withdrawing it.
While contributions made by your employer or your spouse do not count towards such a super withdrawal, you and your partner or others with whom you’re buying the home can separately make personal super contributions and withdraw the same under the FHSSS. Note that the FHSSS is only open to Aussies who’ve never owned property before. However, people who’ve owned and lost property may be eligible to apply under the financial hardship provision.
You have to get permission from the ATO before either requesting your super fund to release the amount or signing your homebuying contract. Once you receive the ATO’s determination and place a request for releasing super funds, you have one year to sign the contract for buying your home or recontribute the withdrawn super. On the other hand, if you have signed a contract to buy your home and wish to use your FHSSS savings, you must apply for super release within two weeks. You can only apply for withdrawing super through this scheme once, even if you made an earlier request which was cancelled.