Question 1: Why do most financial advisers suggest that, while interest rates are low, we should pay off as much as we can of our mortgage? The way I look at this advice is that when rates go up, we should not pay them off.
I’m not sure that ‘most’ financial advisers would give this advice.
I would say that if interest rates fall you should keep your mortgage repayments the same, not drop them, to ensure you are ahead. And if interest rates then rise, you will have a built-in buffer.
Many people would be in this situation now. Therefore, anyone who has had a mortgage for more than, say, three years, will hopefully be well ahead on their mortgage repayments and won’t be forced to find additional cashflow as rates rise.
I have given some detailed information on whether to pay down your mortgage faster or invest more in super in a recent article, and it depends on a number of goals and circumstances.
Question 2: If my husband was to be placed on a disability pension, and I am already on a disability pension, how are we affected as far as assets or income go, if only my husband has superannuation of $400,000? Thanks, Jenny
As you are both on a disability support pension, I assume you are under the age pension age.
Once you turn age pension age, you have the choice of moving to the age pension or staying on the disability support pension.
Most people move to the age pension, as this means they no longer have to meet any medical reviews, and they have more flexibility in terms of accepting part-time work or travelling outside Australia.
The rate of payments, income and asset tests are all the same whether it’s the age pension or disability support payment.
Therefore, if you are under age pension age, any funds held within super are exempt under the income and assets test until your husband reaches age pension age.
If you find you need more income, your husband could look to withdraw a part of his super to supplement your disability support payments, while leaving the majority in super so that it does not fall under Centrelink’s asset test.
Question 3: Hi Craig, I have a question further to your answer on what is counted as assets. We are of pension age and recently bought a lower-value home outright. We have signed up to build a house which will have a higher value and have arranged our finances to pay for it.
Once the house is built, it will be our home and we plan to sell the current one and pay back into super. At present, we do not receive the age pension and live on a small income stream and an amount of UK state pension that will not rise.
We’ve been told recently that our build is likely to take about two years, much longer than we were originally advised. Our assets include super pension amount, the land, the amount in the bank put by for progress payments, and little more. The assets total about $890,000.
Are you aware of anyone who has succeeded getting a part age pension in these circumstances? Might it be be possible once we start to make the progress payments? Or will we have to wait until our building plan comes to fruition and we have less liquid assets? Thanks and best regards, Jan
There has to be a dwelling on the land for it to be considered your main residence. And if you have more than one home, your principal home is the one in which you spend the greatest amount of time. Your main residence is then exempt from Centrelink’s asset test.
Therefore, you need to wait until you can move into the new home before Centrelink counts this as your main residence and makes it exempt from the asset test. Currently your existing home should be exempt for the asset test.
As a member of a couple and as home owners, you can still have up to $901,500 in assets and receive a small part age pension.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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