Would it be better to borrow from the bank or should I use my super?

Would Kerry avoid interest payments if he used his super instead of a bank loan to build a new home?

Would it be better to borrow from the bank or should I use my super?

Kerry isn’t sure whether to take on a bank loan or use his super savings to pay for a new house that he and wife are planning to build. He asks Noel Whittaker for his opinion on the best funding source.

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Q. Kerry
My wife and I are going to build a new home and the question that I am asking is: Would it be better to borrow from the bank or should I use my super?

I am nearly 67 and still working full time and the wife is retired but not has not yet reached pension age. We own our home and have just purchased a block of land for which we paid cash. We have been to the bank and they are willing to lend us the money to build, which we would repay when we sell our home. I will most likely retire when the new house is finished or, ‘maybe’,  at any rate. I have been thinking that it may be better to withdraw my super savings and use that to pay for the new house. Then, when we sell our home, we could use that money to supplement the pension. I have $270,000 in super plus $130,000 in savings and shares, and the wife has $100,000 in her super account.

As my super is on low risk and low returns, I thought that instead of paying interest, it may be a better way to proceed. What do you think?

A. Provided the returns you expect on your super will be better than what the bank will be charging in interest, I would prefer to see you use a bank loan and keep your super savings intact. Remember that good superannuation funds have been averaging better than 8 per cent per annum which should be way more than what the bank will charge you. You have a safety net because you can withdraw your super to pay off the loan, if you needed to do so.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

To make the most of your money in retirement, first you need to know the rules. The PensionChecker™ tool has all the information you need.

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    Financial disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    Cowboy Jim
    17th Apr 2019
    11:12am
    How much does he intend to pay for the house to be built and how much does he expect to get from his existing house? That could have a real impact on which way to proceed. Looks like he might still want some age pension and then it's imperative to spend quite a bit of dosh on the house he wants to build.
    older&wiser
    17th Apr 2019
    11:36am
    With banks tightening, might have trouble getting a bank loan. Was an article on TV only 2 days ago about very similar -couple in their mid 60's. Were building - needed some money - bank refused. Family had to chip in.
    Farside
    17th Apr 2019
    2:07pm
    My in-laws found themselves exactly in this situation with an in principle approval only to have the bank walk away the agreement despite having more than 100% security over a separate title. Family has not had to chip in but it has caused some grief to their kids who were renting the other property.
    Rae
    17th Apr 2019
    4:11pm
    We had that happen in 1973 when the bank cut funding after we poured the slab in the first stage. It's how I ended up in a little log cabin that fitted the slab.
    Magic Touch
    17th Apr 2019
    12:12pm
    I don,t know where the house was build, once the house was build the value may over shoot the asset test then you don,t had pension payment at all. Also the land tax you had to pay because it,s an investment so alot of changes. If you loan from the bank then it were be another problem to repay the bank as interest rate can change every time the bank like too, so is a bit of the risk. The best it,s to don,t had any debt with the bank after you retire.
    Old Geezer
    17th Apr 2019
    1:07pm
    Use your super as your home is the safest place for it.
    Tom Tank
    17th Apr 2019
    2:04pm
    This might be OK for one as wealthy as you have said in the past that you are. Ordinary people don't have the same back-up of finance as you obviously have and frankly you, like most wealthy people, have no idea how the ordinary person lives.
    Tom Tank
    17th Apr 2019
    2:04pm
    This might be OK for one as wealthy as you have said in the past that you are. Ordinary people don't have the same back-up of finance as you obviously have and frankly you, like most wealthy people, have no idea how the ordinary person lives.
    ardnher
    17th Apr 2019
    2:47pm
    people seem to think they can dip in and out of their superannuation...there are ramifications for doing so and people should find out what they are before doing this.
    Rae
    17th Apr 2019
    4:09pm
    Go and see your accountant and take independent fee for service advice from a financial advisor. Also go see centrelink to fin out the consequences.

    A new home, the maximum savings in super or even outside and the full aged pension is looking like a winner unless you are one of the really rich.