Should you pay off a mortgage with super before you retire?
- While paying off a mortgage with super can provide financial certainty, it may significantly reduce the retirement income needed to last decades
- The ATO tightly restricts early access to super, though you may qualify under certain circumstances, such as severe financial hardship.
- Alternatives such as refinancing, making extra repayments, using an offset account, or downsizing can help retirees become mortgage-free without drawing on their super.
A fully repaid mortgage is often seen as essential for a comfortable retirement. But what if your retirement date is drawing closer and you're still making home loan repayments?
For many older Australians, that's becoming increasingly common, and it raises a big question: should you use your superannuation to clear your mortgage?
Let's explore whether paying off your mortgage with super is a viable strategy, how you can do it, and the pros and cons involved.
How much do you need in retirement?
There's no single dollar figure that suits everyone, but the Association of Superannuation Funds of Australia's (ASFA) Retirement Standard is the most commonly referenced benchmark.
As of June 2025, ASFA estimates that single retirees and couples who want to live comfortably would need:
- Singles: ~$51,814 per year
- Couples: ~$73,031 per year
A comfortable lifestyle includes domestic travel, dining out, private health cover, and regular leisure activities.
Meanwhile, those seeking a modest lifestyle, meaning all essentials are covered while sacrificing some of the extras, would need:
- Singles: ~$32,417 per year
- Couples: ~$46,620 per year
- Take note: ASFA assumes retirees own their home outright. Without rent or mortgage repayments, retirement income stretches significantly further.
It's a morbid thought, but you have to ensure you have enough money to get you through your life.
A World Economic Forum report says Australians will outlive their superannuation account balances by a decade, so building enough of a super nest egg to live off for retirement is crucial, especially when you consider we're living longer than ever before.
Tax office data shows around 1.7 million Australians aged 70 and over (60% of the age group) have no superannuation.
Why mortgage-free retirement matters
The federal government's Retirement Income Review highlights homeownership as one of the most important contributors to financial security later in life.
"Homeowners have lower housing costs and an asset that can be drawn on in retirement. If the decline in homeownership among younger people is sustained into retirement, there will be an increasing number of retirees who rent," the review noted.
Homeownership is intrinsically tied to wealth, but there is plenty of data showing declining mortgage numbers among not just younger Australians, but older ones as well.
A report by the Australian Housing and Urban Research Institute (AHURI) stated:
- Mortgage debt held by Australians aged over 55 increased by 600% between 1987-2015 - in real terms, from about $27,000 to over $185,000.
- Homelessness among people aged 65-74 rose by 37.9%, and for those aged 55-64 by 26%, in the 2011-2016 period.
Homeowners enjoy:
- far lower housing costs
- the ability to access home equity if needed
- better outcomes under the Age Pension assets test (the family home is exempt)
"On average, equity in the family home represents the largest share of net wealth for Australians aged 65 and over," AHURI said.
"Available home equity can double the amount of their superannuation and help fund their retirement. Accessing home equity can offer a responsible, long-term solution to allow current retirees to boost their retirement funding."
One way retirees can access their home's equity is through a reverse mortgage.
Renting retirees are even worse off
Half a million seniors are predicted to be eligible for Commonwealth Rent Assistance by 2031 (AHURI), which is a 60% rise from 2016.
"Retiree renters have much higher housing expenditure than retirees who own their homes. Consequently, renters have lower disposable income after housing costs," AHURI said.
In short, being mortgage-free does more than reduce stress; it directly affects your long-term financial well-being.
Can you use your super to pay off your mortgage?
Technically, you can access your super when you retire after reaching preservation age (which is between 55 and 60, depending on when you were born) or when you reach age 65 (even if still working).
What if you're still working? Transition-to-retirement (TTR)
If you're over 60 and still working, you may be able to start a transition-to-retirement income stream, allowing you to withdraw up to 10% of your super balance per financial year. Those funds can then be used to make additional repayments.
This can help chip away at a remaining loan balance, though it generally won't let you wipe the whole mortgage at once.
Are there ways to withdraw super before retirement?
Early access to super is tightly restricted by the ATO. You may only qualify in circumstances such as:
- severe financial hardship
- permanent or temporary incapacity
- terminal illness
- compassionate grounds
Using super to stop a forced sale of your home, e.g. clearing mortgage arrears if the lender has issued a warning, can fall under "compassionate grounds". However, this only applies if you're genuinely unable to meet repayments and collections activity is underway.
You cannot use early release to make extra repayments or to pay off a mortgage early.
Should you use super to pay off your mortgage?
This strategy can work for some people, but it's not automatically wise for everyone. ANZ Financial Adviser Zac Ayoubi says retirees should consider how much super they're giving up, and what income they'll have left after doing so.
"If you exhaust all the funds within your super, paying off the family home and having no other assets that could generate an income, this will leave you asset-rich and income poor," Mr Ayoubi told Savings.com.au.
How it affects the Age Pension
Because the family home is exempt from the assets test, some retirees who pay off their mortgage may become eligible for a full or part Age Pension, plus tax-free income from any remaining super converted into an income stream.
"Over time, as the assessable value of the income stream reduces, the part pension payments received from Centrelink will increase," Mr Ayoubi said.
Pros and cons of withdrawing super to clear a mortgage
Pros
- You'll own your home outright, removing one of your biggest ongoing expenses.
- Freeing up cash flow can reduce financial stress and make budgeting easier.
- Potential to increase Age Pension eligibility, as super is assessed but your home isn't.
- Get peace of mind as you head into retirement.
Cons
- You reduce your retirement nest egg. Super balances continue generating returns - often 6-8% over the long term. Withdrawing funds early limits this growth.
- You may run out of savings sooner. Without super working in the background, you may rely heavily on the Age Pension alone.
- TTR limits apply if you're under 65, meaning you might not be able to withdraw enough to completely pay off the mortgage.
- Some home loans cap lump-sum repayments, preventing one-off pay-outs in full.
Mr Ayoubi suggests weighing your super's expected long-term returns against the interest rate on your mortgage. Even with rates higher than they were in the early 2020s, superannuation often outperforms home loan interest over time.
For some, the trade-off is worth it. For others, the long-term cost is too high.
Alternatives to using your super to pay off your mortgage
If your goal is to retire mortgage-free without drawing down your super balance, you could consider:
- Making extra repayments while still earning employment income. Use our Extra & Lump Sum Payment Calculator to see how much difference extra repayments can make to your overall loan.
- Using an offset account to reduce interest payable.
- Putting windfalls toward your loan, such as bonuses or inheritances. Consider parking your extra funds in high-interest savings accounts or term deposits.
- Downsizing, releasing capital that can be contributed to super (subject to eligibility rules)
- Refinancing to a lower-rate home loan reduces your monthly costs.
Refinancing to a lower-rate loan can reduce your interest burden and help you pay down your balance faster, without touching your retirement savings. Below are some of the more competitive owner-occupier rates available right now.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Savings.com.au's two cents
For most Australians, your home and your super are the cornerstones of your retirement plan. Making a decision that significantly affects either requires caution and proper financial advice.
Using super to clear your mortgage can offer certainty. However, it can also erode the very savings designed to support you for the next 20 or 30 years. The best choice depends on your income needs, health, super balance, home equity, and whether the Age Pension will form part of your retirement strategy.
It can't hurt to speak to a licensed financial adviser for clarity as they can give advice tailored to your specific needs.