Should We Discharge Our Mortgage?

Euphemistic on 28/02/2017 - 13:48
Last edited 28/02/2017 - 18:50

We are in a good financial position having saved over the years, purchased property wisely and lived for a period on fairly limited spending to step up the property ladder.

We currently have sufficient funds to pay out our mortgage and wonder what the thoughts are within this largely financially savvy group are. The money we received from the investment property sale is currently in the offset account meaning we pay no interest on the loan but conversely don't earn any interest from it. At this point a financial advisor has said we should maintain our mortgage.

Situation: Recently sold investment property. Currently have enough funds in the bank to be not paying interest on our home mortgage. Additional funds in the bank for rainy days along with a decent portfolio of blue chip shares. We have 3 kids, preschool and primary school. One of us full time working, the other part time, income is sufficient. Only other liability is the credit card paid off in full each month, two cars owned and in good condition. We believe we are in our 'til retirement' home.

How much 'rainy day' funding would you want to have access to to pay off your home loan and live mortgage free? $30k, $50k, $100k or more?

Poll Options

  • 9
    Keep the mortgage open
  • 2
    10k saved up, can the mortgage
  • 0
    50k saved up, can the mortgage
  • 0
    100k saved, go mortgage free
  • 1
    Keep saving, you need more
Financial

Comments

  • Austin 316 on 28/02/2017 - 14:00
    +6

    If you are paying no interest on your home loan, then you should leave it at that. Remember, if you want to earn interest on that money, you would need to pay off your home loan first, and then you won't have that money with you anyways.

    This way you would have all of your funds available to be used in case of any emergency.

    BTW, well done in reaching at this stage of your life. It's better to have this problem then a lot of other problems.

    • Euphemistic on 28/02/2017 - 14:49

      I know anything could happen at any time, but wondering how much spare cash would be needed short term. That is long enough to organise some sort of loan.

      • EightImmortals on 28/02/2017 - 17:23
        +1

        About 10K should be heaps. Insurance will pick up any emergency greater than that?

        My 2C is to pay off your mortgage (assuming there's no early payout fees, if there is then just pay off most of it). Once you have paid it out then the bank no longer has ownership of your home, you do. You can then keep doing what you're doing money-wise cos it sounds like you guys know what you are doing on that front. When the housing bubble bursts (and it will eventually) you might temporarily lose paper value in your home but you'll still own it and wont be subject to any margin calls or interest rate rises. There is NOTHING better (or safer) than being debt free.

  • mick123 on 28/02/2017 - 14:27
    +1

    keep the mortgage open and if not done already, change your loan to Interest Only.
    Any additional funds you earn can be saved in a "high interest" account (wont get much these days) or invested elsewhere.
    Keep it that way till you decide where to invest your large sum of money, then see if you need to close it

    • Euphemistic on 28/02/2017 - 14:42

      Yeah, that's the current situation. Additional funds in a high(er) interest account, but not interest only at this point. Hadn't considered interest only on the loan.

  • altomic on 28/02/2017 - 14:46
    +6

    hmmmm, maybe a different train of thought but how about paying off my mortgage?

    congrats on your position.

  • [Deactivated] on 28/02/2017 - 14:49
    +3

    On a slightly pedantic note, 'paying off' your mortgage and discharging are different. Paying off means paying the bank the owed money. Discharging is the land titles office process to officially remove the mortgage from the title. When you pay off the mortgage with the bank, they will give you the discharge documents that you can use immediately at the titles office or you can keep the property undischarged in case you want to save the fees in the future if you want another loan with the same bank. It's reasonably common to have a property payed off but undischarged for later convenience. It's probably the most flexible compromise. If the bank is offering to formally discharge…this is OzBargain and they will be charging you a fee to lodge a pretty simple form. :)

  • Oz80085 on 28/02/2017 - 16:18

    You could pay down a majority of it and then refinance back up (into a different split loan) for investment funds? Maybe buy some more property/shares?

  • Oz80085 on 28/02/2017 - 16:19
    +3

    Leave like $500 on it and just leave it as interest only.

  • JetLi on 28/02/2017 - 16:56
    +1

    If you are planning to rent it out in the near future, dont pay it off.

  • Euphemistic on 28/02/2017 - 18:55

    Thought I'd add a poll.

    • EightImmortals on 28/02/2017 - 19:46

      OK, then I'll add a summary of the current Australian and global financial situation. :)
      You can get all the info from official sources but this mob did a good summary the other day, main story starts a couple of minutes in.

      https://www.youtube.com/watch?v=SLP24SZRGN4

      I stand by my comments above. :)

  • wortho on 28/02/2017 - 19:51

    We kept our PPOR mortgage going for years longer than needed as we had about 100k in redraw but we kept the balance about $500 to keep interest down. We did eventually use the redraw to buy an investment property so it was worthwhile. We have now decided to sell PPOR and thought it would be easier if we had the deeds so did a discharge. Total cost of discharge was around $550 (+ the $500 we owed) which is something we did not expect, check with your mortgage provider as could be higher as our loan was 20+ years old.

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