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When early access to super can pay off

They both have about $30,000 in super and are suffering financial hardship because their wages have been slashed and they are relying on JobKeeper payments to survive.

Still, they have saved $40,000 for a house deposit and intend to buy a home in the $450,000 price range when they return to work and their incomes return. They are also good savers who expect to continue to build a nest egg once things normalise.

So would it be reasonable for them to withdraw $20,000 each from their super now to boost their house deposit?

When you analyse the numbers, the case to do so is compelling.

If they buy a $450,000 home with a $40,000 deposit, they would be required to take out mortgage insurance at a cost of about $11,000.

However, if they could raise their home deposit to $90,000, mortgage insurance would be unnecessary because they have a 20 per cent deposit.

So by saving a further $10,000 and withdrawing $40,000 from their super to add to their original deposit, they would save $11,000. That’s a fantastic immediate return.

And the savings don’t stop there.

If mortgage insurance was added to the loan, then the couple would have total borrowings of $421,000.

Repayments over 30 years at 3.5 per cent interest would be $1890 a month, which means total interest payable would be $260,000.

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However, if they had a $90,000 deposit and no mortgage insurance, the loan would be just $360,000. And if they made payments of $1890 a month anyway, they would shave six years off the loan, saving a further $94,000 in interest.

There are other additional benefits.

If you shop around for the best available interest rate, it can result in huge savings over the term of the loan.

The Catch 22 is that borrowers burdened with mortgage insurance are unable to shop around because mortgage insurance is not transferable.

So until a borrower has built up at least 20 per cent equity — the loan is no more than 80 per cent of the property’s value — they are effectively locked into their present lender.

Jack and Jill should then make catch-up, tax-deductible contributions to their super to replace their withdrawal when they are back on track. It’s never too late to put compound interest at work.

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