Should I pay my mortgage early? Should I close my SMSF? Your questions answered
Idea
I am 36 years old, work full time and bought a flat in 2019. I have been making additional mortgage repayments since purchasing and currently have $45,000 left on my mortgage. Should I continue with my current arrangements of adding $1,500 a month on top of my mortgage repayments, or should I invest that money elsewhere and leave the remaining balance towards my monthly mortgage repayments? I want to keep my mortgage open and be able to access the savings in my redraw account ($200,000), but I’m not sure at what point I’ll “put the brakes on” my busy mortgage repayment plan and explore other options.
It’s great that you paid off your mortgage so quickly. Given that full exposure is in my sights, if it were me, I’d go ahead and invest later, especially given that interest rates are on the rise again.
However, I’m sure it would be possible to run a spreadsheet showing the slight benefit of investing now. The reality is that future investment returns are unknowable. Now mortgage interest rates also fluctuate, but you know for sure that you will save on interest expense if you pay off your mortgage.
There’s also the peace of mind and extra flexibility you get from being mortgage-free, which has real value even if it doesn’t show up in a spreadsheet. I agree with your thoughts on keeping the facility open so you can redraw. It’s much easier than applying for a new loan.
When your mortgage comes to an end, you will be able to consider how best to reallocate the money currently earmarked for that purpose. Supercharges, planned and unplanned investments and maybe an increase in your holiday budget!
I’m set to receive an inheritance worth approximately $3 million from my parents. My wife and I, now in our 80s, have no debt and receive a comfortable state pension. My plan is to give most of the inheritance money to my four children. All but one of my children are renting. Are there any inherent problems with this plan?
Nothing I can see. Things would be different if you were on a Centrelink age pension, but your defined benefit pension will not be affected.
There is no estate or inheritance tax in Australia; It is one of the few developed countries where this is the case. In other words, assuming that the inheritance is received in cash, there will be no tax consequences for you or your children.
It’s worth chatting with your attorney to make sure your estate planning arrangements are on track, but from what you’ve shared, your plan makes sense and I’m confident your gifts will have a very meaningful impact on your children’s lives.
I am 81 years old, retired and have an SMSF in retirement with around $1.2 million in shares and cash. I am considering liquidating the SMSF and transferring the balance to a large pension fund to make things easier as I get older. My plan would be to sell the assets, complete the final tax return and audit and close the SMSF. Are there any problems with this approach, particularly the risk of losing my tax-free pension status?
Good idea. SMSF management can become burdensome. And at some point in the future, your family and beneficiaries will be truly grateful that you simplified things.
You will need to work with your fund’s accountant to ensure the transfer is documented correctly, but otherwise there should be no problems transferring your pension from the SMSF to the mainstream fund.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
