Buying a home is – for many of us – the biggest purchase we will ever make in our lifetimes. For many Australians, getting together the money for the deposit on a home loan is a lengthy process, full of sacrifice and uncertainty.
You may have wondered on more than one occasion if it is possible to use your superannuation fund to pay for a home loan, especially if you are nearing retirement age. After all, a superannuation fund generally functions similarly to a savings account, accumulating money over time and keeping your wealth secure.
The short answer is yes, you can use your superannuation to pay for a home loan, but not in the way you might think. Here’s what you need to know about superannuation home loans:
Can I use my current superannuation balance to fund a home loan?
If you have not yet reached your reservation age and retired, the answer here is an almost definite “no”. Superannuation in Australia is subject to strict regulations – including when and how funds can be withdrawn.
Before you retire, you can only withdraw funds from your superannuation in emergency circumstances, such as if you’re facing terminal illness, permanent incapacitation, or severe financial hardship.
If you have an existing home loan, you may be able to make a withdrawal from your super to make a mortgage repayment to avoid losing your house, as this falls under the banner of compassionate grounds, which also covers medical and funeral expenses.
After you’ve retired, you may be able to use money from your super fund to put a deposit on a home loan. It’s often more difficult for retirees to successfully apply for a mortgage, though some banks and other lenders specialise in loans for mature Australians.
So how can I use my superannuation fund to save for a mortgage deposit?
As of July 2017, first home buyers can now start making contributions to their super funds to save towards a home loan.
This is called the First Home Super Saver Scheme (FHSSS) and it allows voluntary contributions to be made by individuals to their super funds, which can be withdrawn as of 1 July 2018.
In addition to offering a secure way to save a deposit where you won’t be tempted to spend your saved money, the main appeal of this scheme is the tax offset applied to these contributions. There is a significant reduction in the amount of tax payable on super contributions when you make a withdrawal, potentially making it easier and faster for Australians to save for a home loan using the First Home super scheme.
Super funds with home loan offers
As well as securing your money for retirement, many super funds offer a range of extra features and benefits, which may appeal to selected Australian households.
Some Australian super funds are affiliated with home loan providers, including banks and non-bank lenders. Members of these super funds may be able to enjoy special home loan offers, such as discounted interest rates or waived fees on their mortgage. While you won’t be able to use the savings in your super fund to pay for your mortgage, joining one of these funds may allow you to enjoy a better home loan deal than you’d otherwise be eligible for, and add some flexibility to your household budget.
A mortgage and superannuation are two of the most significant investments than many Australians may make in their lifetimes, so it’s important to compare your options and carefully consider the costs and benefits before selecting the best super fund or home loan for you.
Buying property through a self-managed super fund
One of the few circumstances in which you can use your superannuation fund to buy property is if you have a self-managed super fund, or SMSF. These super funds require significantly more time and effort to manage, as you are responsible for controlling your retirement money, including how it’s invested.
Unlike a regular super fund, you can use your SMSF to fund a home loan for residential or commercial property, provided you comply with the following rules:
- You can only purchase an investment property, solely for providing retirement benefits to fund members (that’s you)
- It can’t be lived in or rented by a fund member (that’s you) or any fund members’ related parties (that's your family and friends)
- Returns from the investment property are to go back into the SMSF as part of your retirement savings.
Before you commit to a self-managed super fund, it’s important to compare your available options, and read up on SMSF rules at the Australian Tax Office (ATO). Consider contacting a qualified financial adviser, who can help you work out if a self-managed fund may be the best super fund option for you to get a home loan.
Should I use my superannuation to fund a home loan?
Using superannuation schemes or benefits is certainly one way to fund your home loan. For first home buyers, the First Home Super Saver Scheme could be a great way to save for your home loan faster. Like all schemes, it is subject to regulations and caps on the amount you can save or withdraw, so make sure to keep abreast of the current regulations.
Self-Managed Super Fund property loans are more complicated than many other mortgages, but so too are self-managed super funds themselves. Make sure to do your research on eligibility, fees and regulations for this type of home loan and super fund.