Can I Use Super as Security for a Loan?
Technically, you can use super as security for a loan. However, many lenders are unwilling to let you do so. There are a number of reasons for this. For one, you cannot access your super until you reach a certain age or are retired, unless there are special circumstances. For two, any asset purchased using super is protected individually. If you default on your loan, the lender can only seize the one asset and cannot touch any of the other assets to recoup their loss on the defaulted loan.
Rules Around Using Super as Security
There are other rules you must follow if you want to use super as security on a loan. First, you cannot use all of your super as security. You must leave some behind as a buffer. This can limit your borrowing power and affect the size of your loan. However, it is put in place to protect your remaining assets in case you default on your loan. Second, most lenders will only allow you to borrow 70% of the property value if you use super as security. In addition, you cannot increase this amount by taking out lenders’ mortgage insurance. Finally, you must keep a buffer (such as cash and shares) worth 10% of the loan in your super at all times.
Using super as security for a loan is complicated and risky. Not all lenders allow you to do so. At Mortgage House, we offer a number of super loans to help you achieve your financial goals as you plan for retirement.