Borrow or dig up the 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.


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.

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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.