Free of Debt. Say goodbye to your housing loan
Session 19. See also Session 29 and 29A
This is part of a number of sessions of Finance for Pensioners and solutions to the Housing and Rental Crisis
A shocking trend has emerged in the last 15 years
54% of retirees still have a housing loan
The most important strategy for pensioners is to get free of debt
There are a number of ways of getting rid of a housing loan
- Withdraw money from Superannuation to pay out the loan
- Positive Gearing Plan
- Home Equity Access Scheme
- Sell the House
- Consider Retirement Living Options
A housing loan for a residence is non-tax deductible
Debt on your residence is bad
Debt on an investment is good
The first priority should be to get rid of your bad housing loan
1 Withdraw Money from Superannuation
The easiest way would be to withdraw money from your superannuation to pay out your housing loan. It can be done when you are age 60 and in some cases age 55
You have previously converted Taxable Super into Tax Free Super
If not, you can Google how to do it.
You then withdraw the Tax Free Super to pay out your Housing Loan.
Simple
- Positive Gearing Plan.
See Session 29 and 29A
You borrow extra money with your residence as security and invest it in bank shares. This strategy will not only pay out your non tax deductible Housing loan but also convert a bad loan into a good loan.
You can combine this with withdrawing money from your super. But always ask yourself the question can I borrow the money rather than using my own money. In the case that you are using super money you should never use it directly as in 1 above but invest it first. Invest it in Government Bonds or Bank Deposits first and then use the Government Bonds and Bank Deposits as security for a loan to buy Bank Shares.
- The Home Equity Access Scheme
See Session 3
This is gold.
Can be used by pensioners on the full pension, affected under the Income Test or under the Asset Test
ATO and Centrelink treat property differently. There is no Negative Gearing for Centrelink, no Division 43 depreciation Allowance and loans are treated differently.
Residential Property does not exist for Centrelink , neither does a mortgage against you residence. For ATO purposes the only things that counts is the purpose of the loan.
You can use your house or an investment property as security. It does not make any difference, but a loan for private purposes is not deductible and a loan for investment is.
Centrelink does not take a loan against your residence into account but takes a loan against an investment property as a liability . The Home Equity Access Loan is a liability. This means that if you are affected under the income test the interest on the loan is tax deductible and increases the pension and if you are affected under the asset test the loan is a liability and increases your pension.
Centrelink still takes the purpose of the loan into account but in a different way. If you are affected under the asset test and buy an asset there is no difference in your pension as the loan cancels out the extra asset . We have already seen in session 4 that we can get a free $60,000 car if you invest in a non asset which in that case was a lease.
There is one other big non-asset and that is your residence. If you use the increase in your pension to reduce the mortgage on your residence you can get rid of your loan fast.
As an example if you still had a $200,000 loan and 10 years to go you can get rid of that loan in 5 years and save yourself $125,000.
- Sell the House
You can now buy another house or consider other Retirement Living Options. (see Session 14)
You would be surprised how many retirees use the cash from the sale of the house to buy another house or one of the retirement options
Do not hurry. Some of the retirement options are tax deductible
Never use your own money if you can borrow money.
Invest your money first and put it in Government Bonds or another Investment property and use that as security for a loan.
- Consider other Retirement Options
See Session 14. We can help. We are preparing a number of other options
Everybody’s situation is different . If anybody is interested give me a call on 0412 324 806