To Pay off Mortgage in Full or Leave It Open ?

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  Duckie2hh on 20/08/2024 - 17:05

  PPOR or IP?

  Leaving the loan open and offsetting any interest cost would be beneficial as you would have easy and quick access to capital /funds when required.

  Was thinking of putting $100K in some sort of index fund for my 2 kids future and leave the rest in the bank or invest it somewhere else.

  Be careful not to pollute the loan from a tax deduction point of view.

• 

  mskeggs on 20/08/2024 - 17:21

  +1

  Consider also you would need somewhere safe to store the deeds if you close the mortgage.

  I'd keep it for the flexibility to redraw the excess if needed.

  • 

    JIMB0 on 20/08/2024 - 18:30

    +5

    Most are electronic now. However it's still a good idea to keep a mortgage over the house to provide an extra layer of security against someone fraudulently selling your house.

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  freefall101 on 20/08/2024 - 17:33

  +3

  Do you have an offset? I would have thought most banks wouldn't bother letting you convert a $1k home loan to interest only. If it's an offset, load that sucker up and withdraw it if you need it, then invest the rest however you feel, it makes the most tax sense.

• 

  cashless on 20/08/2024 - 18:01

  +4

  If investing for your kids, depending on their ages, be careful with tax planning. You can’t just invest in their names without considering how they’ll pay tax and also subsequent CGT liabilities if they sell

  • 

    ihbh on 20/08/2024 - 18:16

    0% on $416, then 66%, finally 45% over $1307.

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  JIMB0 on 20/08/2024 - 18:24

  +4

  I paid mine down after refinancing for a cashback and larger loan. The bank rang and offered to stop the payments, I just needed to fill out out a form.

  The amount owing goes up a trivial amount of cents each month now. It has redraw so I could pull out a few hundred thousand if I needed it.

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  flapperino on 20/08/2024 - 18:52

  If it was me, I'd make an offset account with 40k in it, and draw mortgage repayments out of it. So you're just paying the principal only, no interest.

  There's no disadvantage doing it this way, unless there is a bank fee for having the offset account, then that's the cost.

  That way your funds are available as cash if you needed it, as opposed with held as equity with the house.

  Then spend / invest the rest in whatever way you please.

• 

  onetwothreefour on 20/08/2024 - 18:55

  Mine's fully offset, I'm never sure whether I should pay it off or leave it. It's costing me $10 per month to keep it open plus I have more money in the bank/ETFs than I do in the offset so don't see myself ever needing to take money from my offset account.

• 

  dtc on 20/08/2024 - 21:07

  +1

  You always have to make repayments - I tried to do what you did (fully offset the small mortgage), but over a few years the very minimum repayment (which was around $250 per month or something) and eventually it was paid off. I then did nothing but the bank finally discharged it. Oddly I still have the offset account sitting there in my bank accounts.

  I could have withdrawn from the mortgage and kept it going by artificially increasing it but it didnt seem worthwhile. Particularly toward the end, the amount i could redraw was only a few $10,000 and it wasnt that useful since I had that much saved up anyway. As collateral for another loan its not really that useful either, because if I wanted to borrow more than the redraw amount they would require at least a revaluation and a new loan application anyway. Just save a few $100 in land titles registration fees.

  However if you put all the money into offset then its always there and available, if you decide to buy a car or something.

  so…an offset gives you more flexibility. Paying off the loan doesnt really have a downside, keeping the loan open with a few $1000 probably doesnt do much and wont avoid much in terms of costs for a new loan

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  Agent Q on 20/08/2024 - 21:07

  Always leave it open to provide flexibility to access capital for an emergency.

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  bazingaa on 21/08/2024 - 06:22

  do you have a fixed interest rate or variable rate + offset account loan ? if latter, you can keep the money in the offset account

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  HardQuiz on 21/08/2024 - 06:50

  +1

  What’s the annual fee for having an offset ?

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  tonester on 21/08/2024 - 07:07

  Im not sure if I should pay off the loan in full or pay put the bulk of the loan and leave a token amount say $1K at interest only so if I need to use the property as collateral for a loan in the future.

  either fully offset or fully pay off the loan, so that there's no interest to pay, but still keep it open to have quick access to cheap funding if needed

  yes, it's possible to better invest instead, but only if you know, or are fairly certain, that your net rate of return will be higher - for peace of mind, it's best to fully offset/pay off the loan

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  junet on 21/08/2024 - 10:24

  If you fully offset it remember there's only a 250k ADI guarantee. Not saying anything bad will happen but that's all your offset deposit is covered for. Also sets you up for fraud/scams etc as opposed to having it sit in your loan or mortgage discharged.

  • 

    soan papdi on 21/08/2024 - 14:03

    That's correct but joint accounts would be 500k per ADI (250k per person per ADI all accounts combined)

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  Chris Topher on 21/08/2024 - 17:03

  When I had a windfall 1st thing was to off-load the mortgage.

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  Lunarboogie on 21/08/2024 - 17:04

  I am still unsure how offset accounts work. My PPOR IO loan is $350,000 and for which I pay $1900 per month. I have kept it IO as I own an IP outright that I am keen to sell in the short term and then use the proceeds to discharge the PPOR mortgage fully.

  If I do that and then establish a new offset mortgage of $350,000 and drop $350,000 into it, do I still pay $1900 per month? Or does it adjust to zero? And if is still $1900, can I then withdraw the $1900 the following day and invest it elsewhere. It wouldn't make sense to keep it in there. Thanks all!

  • 

    nocure on 21/08/2024 - 17:52

    Setup the $1900 payment to come out of the offset, as the interest charge will be $0 the money is then classed as redraw. Don't withdraw the $1900 as it will attract interest.

    • 

      Lunarboogie on 22/08/2024 - 00:14

      Can you explain that again. I didn't quite catch it.

  • 

    tomclancy on 22/08/2024 - 01:23

    +2

    If I do that and then establish a new offset mortgage of $350,000 and drop $350,000 into <the offset account>, do I still pay $1900 per month?

    Answer:

    • if the new offset home loan is IO, then the $1900 monthly payment disappears. Loan balance and offset balance stay at -$350,000 and +$350,000 respectively for as long as the IO period exists;

    otherwise…

    • if the new offset home loan is P&I, then a monthly repayment ~$2100 (calculated as principal + notional interest) will be repaid from the offset account and into the loan account. Thus bringing down the loan balance to -$347,900 and +$347,900 after month 1 and so on until the loan balance is $0
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  FezMonkey on 22/08/2024 - 10:02

  Surprised no one has mentioned this but look into debt recycling.
  It's a way to redraw those funds to invest elsewhere and tax deduct the interest even though it was originally from a PPR.

  Just a few things to be careful of, e.g. paying the loan in full and then redrawing into a separate account, also making sure the bank won't close the loan when you put those funds in (or leave $1 outstanding).