More beneficial to keep your money in super than pay off loan
I AM 60 and my husband is 57. We own our home, valued at $550,000, and we have a holiday home worth $280,000, on which we owe $125,000. The holiday home is rented during peak periods and we use it in the off-season. My husband works full time and plans to work for at least five more years. I work part time.
I have a small super balance of around $82,000. We are thinking of retiring to the holiday house when my husband retires but the house will need to be updated.
Should we pay the $82,000 off the loan? At present the loan should be paid out in five years, eight months. Or should we borrow $150,000 to update and extend the house and keep the money in super and I keep working part time?
With the house we own, plus my husband’s super at the time of retirement, we should have around $1 million.
I think it’s prudent to work as long as you are happy to do so, which is why I would rather see the money grow in super rather than be withdrawn to pay off a loan on which part of the interest is tax-deductible.
You are in a good position and should be able to comfortably afford the repayments on a loan of $150,000 to renovate the home. I suggest you do it sooner rather than later to take advantage of today’s prices.
When you eventually downsize to the holiday home, investigate the new downsizing provisions, which may enable you to add part of the proceeds to your super.
MY husband and I are 45, have combined earnings of $260,000, with total super of $200,000, and we have three children. We have a $600,000 mortgage on our residence, which is valued at $950,000.
We could not sell our previous home but the rent completely covers the $525,000 mortgage repayments. We can afford the mortgage at current low interest rates, however, we are wondering whether to keep the previous home or to sell.
If we sell, we can reduce the mortgage on our current home, but will no longer hold it as an asset. If we keep it, we are paying a lot of interest, which could negate any profit if we sell in 10 years.
‘We could not sell our previous home but the rent completely covers the $525,000 mortgage repayments’
I guess your best course of action depends on what you see as the potential for capital growth in the original home.
You state that it is positively geared, so the only cost to you in holding it is the interest you are paying on your present loan, which would be reduced if you sold the other house.
An easy way to do the calculations might be to work out how much you would net if the house was sold and the mortgage reduced. Then you could compare this figure to what you think you can achieve in capital gain from the house if you kept it. Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au