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I am about to embark on buying my first home in Melbourne. Is there an optimal time I should be thinking about for paying back the mortgage?
Once the conventional wisdom was that you paid off your home in full before embarking on any other forms of investment.
However, the problem with that is you are losing precious time for those other investments to take advantage of compound interest. This is why it is now recommended by many that you get your mortgage “under control”, and then consider other forms of investments, such as borrowing money to buy shares or property.
Interest payments over the life of a 30-year mortgage can be astronomical.Credit:Simon Letch
Because of the way compound interest works, the amount of interest you pay increases exponentially over time.
Most home loans are written over a 30-year term to minimise repayments, but it makes the interest cost horrendous. Therefore, I think the best strategy may be to pay your housing loan back over a 15- year term.
The cost would be about $8 a month for every $1000 borrowed. That translates into a monthly payment of about $3200 on a $400,000 mortgage. This is based on an interest rate of 5 per cent, which, I think, is the highest variable-rate mortgage rates may go.
If you can manage payments at this level, you would have saved hundreds of thousands of dollars in interest, plus give yourself a safety buffer if interest rates keep rising.
Once you can make these payments more comfortably, you can then investigate other wealth-building strategies.
I am aged 60 and remain confused about the rules relating to working part-time after retiring. Is the rule the same, no matter if your superannuation is in accumulation or pension phase? I have been told you need to sign a form for your super company, stating that you intend to retire fully. And then I was told that once you do that, you cannot work more than 10 hours a week. Could you please clarify, as I want to retire from my full-time job soon, and work a casual job one day a week.
Once you reach age 60 and have satisfied a condition of release, which is usually resigning from a full-time job, you are free to access your super without restriction.
There are no limits on how many hours you can work or how much you can earn.
If you choose to work, you can still make concessional super fund contributions up to age 67 without having to pass a work test, and non-concessional contributions up to age 75.
My husband and I are both aged 63, with $320,000 and $220,000 in super, respectively. I salary sacrifice the maximum amount to my super accumulation account. Having just paid off our mortgage, we were thinking of redirecting $400 a fortnight to my husband’s super to bring his contributions up to the maximum allowable. Is this still a wise thing to do in this unstable climate? Or should we keep the money as savings and make a large lump sum super contribution later? It is hard seeing our money slipping away as we put it into super.
You need to consider your super fund as long-term investment vehicle. After all, you may live for 30 years after you retire, and the proceeds of your fund has to be able to support you during those years.
Because super funds invest in shares, which provide the best long-term returns, there will be years when their performance is lower, but these are more than compensated for by the years when fund investment returns are excellent.
The long-term average return for a good super fund is about 8 per cent a year. So, don’t worry about the short-term fluctuations.
Take the opportunity to contribute to your super fund now, when asset prices are relatively lower. That gives you the opportunity to buy shares at bargain prices.
I am aged 71 and my wife is 51. I am considering retiring, and my wife is not currently working. We own our own home and have a mortgage on a rental property in which we have about $350,000 in equity. How would our age pension be calculated?
Because your wife is not of pensionable age, you would be able to apply for a couple’s pension and receive half the amount that a couple would normally receive.
You would be tested on both your assets and income, with all the assets you and your wife own taken into account.
Provided the mortgage on the rental property is secured on that property, the value for the assets test would be the property value, less the loan amount.
For the income test, the net income from the property would be used.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: no**@no***********.au
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