Accessing super to pay the mortgage is a last resort
Accessing superannuation to help prevent foreclosure on a home is possible but there are a number of compliance issues that must be met first, says a leading superannuation adviser.
Linda Bruce, senior technical services manager for Colonial First State, said as inflation has risen there has been an increase in levels of mortgage stress which could result in more households starting to find it difficult to pay the bills as well as cover home loan repayments.
“During times like this we start to receive increased numbers of calls from advisers asking if and how their clients can access their super to help them out of a difficult situation,” Ms Bruce said.
She said there are provisions that can allow people to access benefits on compassionate grounds prior to reaching preservation age, including to help halt the foreclosure or the sale of the family home.
“Foreclosure is when the bank comes in and takes legal possession of the property, and then sells it,” she said.
“Sometimes you will also see signs up such as mortgagee in possession and that’s where the borrower still owns the property but the bank’s put them into a situation that they’re forcing them to sell the property.
“You’ll probably see that more commonly where the banks don’t really want to take legal possession and then have to sell – they just want to require the owner to sell the property so they can get their money back.”
In either of these situations, the client will need to provide evidence to support the claim that they are in financial or mortgage stress.
“You can’t just go to the trustee, you have to go straight to the ATO with evidence to support that you are in this situation,” Ms Bruce said.
“The client has to get approval from the ATO and take an approval letter to their trustee to get access to their superannuation for this purpose.”
In order to get approval from the ATO, the client needs to prove a number of things, she continued.
“The first thing that the client needs to present to the ATO is a default notice issued by their lender for each loan secured against the client’s home,” she said.
“If they want to consider super as an option to pay for the overdue amount and they want to access that on compassionate grounds, they do need to go to the bank or the lender to get a letter from them,” she said.
“The letter must state that the payment amount is overdue and the mortgagee will foreclose or force the sale of the client’s home if the overdue amount isn’t paid by the due date.
“The letter must be dated no more than 30 days before the date of application and must also state the amount equal to three months of repayments for the loan amount as well as the amount equal to 12 months interest on the outstanding balance of the loan.”
Ms Bruce said the client must also present a utility bill to the ATO which cannot be more than three months old.
“The bill needs to be issued in the client’s name to prove the client is actually living in the particular property and that it is their principal home.”
“If it is an investment property, then the client is not eligible to access their super for the overdue amount.
“If the client is asset-rich and cash poor and they have an investment property or share portfolio they will need to sell down those assets before they can access super.
“Or if they can get another loan, for example, a personal loan or redraw facility on their home loan, they needed to use those first.
“This policy is designed to get a client to try everything else first, before accessing their super which should really be a last resort.”
