Ask Paul: Pay off mortgage or keep it as a line of credit?

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Dear Paul,

I am 42 and my wife 40, with three children. We have paid our mortgage to 99% but plan to renovate in the next two years.

To ensure the loan does not get to 100% we have reduced the monthly repayment to the minimum and are moving all excess money to an online savings account with a bonus interest reward.

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When the mortgage gets to 99% we redraw the minimum amount of $2000, which does not incur a fee.

Should we close out our mortgage and apply for a renovation loan when needed or keep the current home loan at 99% and enjoy the security of having a pre-approved line of credit and safety buffer? - Brett

Good job, Brett. It's great to get that home loan nearly paid off at a pretty early stage in your life.

An offset account may have made this all a bit easier as you could had paid the mortgage down to zero, then redraw to renovate, but the most important thing is that you have been great savers.

I would go with your second option.

Keep your current mortgage and draw down as needed. As you say, the pre-approved loan and safety buffer is a great thing. It should also lower any costs if you had to apply for a new loan.

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Paul Clitheroe AM is the founder of Money and serves as the publication's editorial adviser. One of Australia's most trusted personal finance experts, Paul has spent decades helping Australians build wealth, manage debt and make smarter money decisions. He is widely known for host­ing the Money TV program and authoring best-selling personal finance books. Since launching Money in 1999, he has played a leading role in delivering practical, independent financial guidance to Australians. Paul is chair of InvestSMART Financial Services. He was the founding chair of Ecstra Foundation, a national not-for-profit focused on improving financial wellbeing, from 2018 to 2026, and led the Australian Government's Financial Literacy Board and Financial Literacy Australia from 2004 to 2019. In academia, Paul is chair in financial literacy at Macquarie University, where he is also a Professor in the School of Business and Economics. Ask Paul your money question. Due to volume, Paul cannot respond to questions posted in the comments section.
Comments
jenniel neieln
December 11, 2019 1.37pm

We are now mortgage-free, now what to do next.... we have decided to move with 12 months but my husband hasn't worked for 3 months ( work Injury, no income). should I keep my home loan account open, a very basic account, no redraw?