Higher rates make it more compelling to lower mortgage debt but there are ways to keep plugging away at retirement savings too.
or focus on superannuation depends on individual circumstances including age, capacity to repay, when the money will be needed and whether contributions exceed super caps, say financial specialists.Innumerable studies have also highlighted the psychological benefits of owning a home, ranging from a sense of control and security to strengthening relationships.
The pre-tax rate of return for a 32.5 per cent taxpayer paying off their mortgage at an interest rate of 6.25 per cent is 9.18 per cent, which is twice the return of most top-paying base rate savings accounts.P/ASX 200 is 5.7 per cent, including franking credits, according to financial advisory group Cameron Harrison. Investment grade bonds are delivering around 6 per cent.
Rainmaker’s Dunnin illustrates the result of reducing a 30-year term by five years and investing what would have been the regular monthly mortgage repayments into a balanced fund. Investment earnings are taxed within the fund, like superannuation, but at a maximum rate of 30 per cent. After 10 years, the balance can be withdrawn tax-free.
Conditions vary between lenders so borrowers are advised to check or seek assistance from a mortgage broker.Scott Girdlestone, a director of consultancy William Buck, says an offset account allows a borrower to reduce the interest charged on a standard variable rate or investment home loan while having access to the cash when required.“It makes a loan much more manageable.
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