Should I Pay off The House/Mortgage Early?

omicron on 10/05/2021 - 10:29
Last edited 10/05/2021 - 12:06

Hello Everyone, seeking a bit of a Financial advice here from our fellow OZB Finance Gurus and experts :D

So, basically Me and my wife built a house back in 2014 and now after 7 years of hard work, staying on budget and lots of cost saving we are at a stage where we have enough in the offset account to pay off the mortgage early.

We also thought about buying an investment property to increase our asset portfolio but then gave up on the idea since the house prices have sky rocketed at the moment. We are just happy to pay off this house (we're living in) and start saving up again to see if we can build a decent (around 5%) deposit again for another property in future.

Should we pay off our mortgage early? Is there a benefit in paying off the house early or should we keep this amount in our offset account for any potential expense in the future?

We have a 3 year old at the moment and we think we are doing okay with the expenses for now. I am sure there will be increased cost once the kid starts the school etc.

What is the process of paying off the mortgage early? Do we need to hire a conveyancer to have this process done for us? How do we remove the bank's mortgage from our property? Is there a set process we need to follow?

Appreciate if someone has gone through the same process and can guide us with this.

Edit - I am in Melbourne, I have 3 year old kid, no car loan at the moment, no personal loan, no credit cards. I have a 100% offset account with no annual package fee on the loan.

I've just created a basic poll for now.

Thank you

Poll Options expired

  • 12
    YES - Pay off the mortgage early
  • 74
    NO - Keep it in the 100% offset account
Financial Home Loan

Comments

  • Quantumcat on 10/05/2021 - 10:37
    +24

    No don't - having a mortgage with the offset covering the interest means you have access to a big loan anytime you want with no approval or waiting period and at a better interest rate. Eg if you want to buy a new car, or your dog needs surgery, or you want to go on holiday etc you can access money at a much better interest rate and faster than getting a personal loan. You might like to tally up all the annual fees you are paying and decide if it is worth having easy access to money (don't forget to factor in the fee for paying off the mortgage early too).

    • omicron on 10/05/2021 - 12:18
      +1

      Thanks, yes, you've made some good points about annual fees and the fee to pay it off early, I will look into it. So, the general consensus seems to leave the amount in offset to have an easy access to the funds.

    • nephilim on 10/05/2021 - 13:09

      You can pay off a home and not pay of the title, exact same thing?
      If your 100k in advance, you can withdraw any and go back to paying the 2% or whatever it is.

      Plus the fee for closing a loan? lol noone on ozbargain should be at a big4 on a bad rate with those types of fee's.

  • Ocker on 10/05/2021 - 10:38
    +4

    Provided the funds are held in a 100% offset account then there is nothing really to be gained by paying off the mortgage. Keep the funds in the offset account for flexibility in the future.

  • mini2 on 10/05/2021 - 10:39
    +5

    You go tell your bank you want to discharge the loan, they'll calculate what's outstanding, you pay the balance and get your title. Done.

  • grog on 10/05/2021 - 10:39
    +1

    Pay off the mortgage

    Consolidate funds for minimum of the next 5 years

    Be debt free as long as possible

  • foxmulder on 10/05/2021 - 10:39

    The immediate benefit would be there won't be any of that annual fees. I subs to this post to see what others think why to stay.

  • EightImmortals on 10/05/2021 - 10:43
    -4

    Pay it off now if you can. There is NO BETTER FEELING than that of being debt free and think of how much you can save each month if you aren't paying interest fees. If you own the house outright you can always draw on the equity if you have an emergency or find that the investment environment comes good at some point. You can talk to a solicitor if you like but I don't think it's necessary for just payout out a mortgage. Watch out for any early exit fees from the banksters and if they are OTT then just pay off most of the mortgage but keep a minimal amount unless you can break free without getting slugged. Also, I'm not sure but if the banks went down (possible) then I'd be worried about all the money you have in your offset account, if that disappears then you'll STILL have a mortgage and no way to pay it out. If you own your house outright and the system goes down then your assets at least will be safe.

    Actually a solicitor might be a good idea for a mortgage discharge as they can advise you about safe title storage etc (Not sure if that's still a thing, it used to be that your house title needed to be kept securely).

    Then if you can keep your current saving patterns going you will have enough cash for further spending/investment without risking your prime asset.

    Just do it. :)

    • Quantumcat on 10/05/2021 - 10:49
      +7

      If you own the house outright you can always draw on the equity if you have an emergency

      If they have enough in the offset to pay off the mortgage there's no interest. Drawing on the equity after closing off the mortgage means having to take out a whole new mortgage with all the administration burden and establishment fees that entails. Much better to just be able to take out your money without having to ask anyone's permission.

      • EightImmortals on 10/05/2021 - 10:57

        SO then my option B, "pay off MOST of the debt" is probably the better way to go…imo.

        • Quantumcat on 10/05/2021 - 11:05

          That doesn't make sense either.

          The more you pay off the less you can access.

          Annual fees are going to be the same no matter how much you have owing so there is no benefit for paying more off.

    • robbyjones on 10/05/2021 - 11:53
      +2

      You don't seem to know a whole lot about mortgages so best to not offer advice. For your own safety make sure you get professional help with your finances.

  • mini2 on 10/05/2021 - 10:48
    +3

    Interesting article on this topic of don't pay off your mortgage:
    https://www.smh.com.au/money/planning-and-budgeting/no-you-s…

  • Drakesy on 10/05/2021 - 11:10
    +1

    I'd pay it off.
    Unless you like paying extra for money you don't need to access.

    Yes i understand it's a nice to have if you do come up with unintended costs, but people shouldn't be taking out car loans anyway.

    The only thing i can think of is emergency dental or health (but your health insurance should be covering a lot of that).

  • PissLUR on 10/05/2021 - 11:42

    Do you pay any annual package fee?

    • omicron on 10/05/2021 - 12:14

      Hi, no, sorry forgot to mention in the original post. I have no annual package fee on the offset account.

      • PissLUR on 10/05/2021 - 12:43

        its really up to you.
        should you want to pay it off. transfer all the money to your mortgage account and then call the bank. they will do the rest.

  • m0tyrider on 10/05/2021 - 11:47
    +1

    If you want to buy new cars or expensive purchases on a cheap loan, keep the loan active otherwise If you cannot get a better return on your money than your current loan rate, pay off the loan and start putting it to work in savings/investments.

  • robbyjones on 10/05/2021 - 11:57
    +1

    I have had an offset account with amount equal to the mortgage for a few years now, until it costs me money I will leave it there just in case I want to do something and need access to money quickly. If you are unsure then maybe leave it until you have accumulated savings that can act as a safety net and then discharge the mortgage. The other thing too is that the deeds are being held by the bank free of charge and if you discharge the mortgage you need to keep this safe and at home isn't safe enough for me.

  • paulh1977 on 10/05/2021 - 11:58
    +8

    i would like to say well done for grinding and saving to be able to put yourself in this position, where you have enough in savings to clear your mortgage.

  • abadacus on 10/05/2021 - 12:34
    +4

    With interest rates so low at the moment, perhaps consider looking into investing a small portion?

  • onetwothreefour on 10/05/2021 - 12:38
    +3

    My offset account is nearly equal to my home loan but I'm not considering paying it off. I've stopped putting any extra money into the offset and will start investing it somewhere else to make some money.

  • DashCam AKA Rolts on 10/05/2021 - 13:03
    +4

    Did you source your loan through a broker? If so trailing commissions will continue so long as you have the mortgage. Something to consider.

    • sagrules on 10/05/2021 - 17:13

      I dont believe thats the case when you have money completely offsetting the loan - thats what our mortgage broker said

      • Ughhh on 10/05/2021 - 17:24
        +1

        Op is asking to pay off mortgage / end the homeloan Instead of just offsetting, so trailing commissions will be affected.

      • DashCam AKA Rolts on 10/05/2021 - 19:57

        Mortgage brokers also receive what is known as a trail commission. This is a deferred payment that the lender pays the broker over the life of the loan. The amount of trail your broker receives is calculated on the balance of your loan. This means that if your broker helps you secure a home loan, the broker will receive the initial upfront commission and then, for every month that you are still in that loan, your broker will also receive a trail commission from the lender.

        Source: https://www.mortgagechoice.com.au/blog/news/2019/02/why-does…

  • JIMB0 on 10/05/2021 - 13:39
    +6

    If you pay it off and later decide to rent it out you'll lose the ability to pull all the money out of the offset and claim the interest on your tax.

    • mtr on 10/05/2021 - 18:50
      +2

      This is one of many reasons not to discharge your mortgage.

      Anyone suggesting that you pay it off is giving bad advice here, unless you have a secret gambling problem or something and don’t trust yourself with what is otherwise a valuable option to use a significant sum of money when required.

      • esosite on 10/05/2021 - 23:04
        +1

        Yup agreed, this is the wise choice. Keep things as is until you decide to buy a new home and transition current PPOR into investment home, then new home receives all offset money.

        The only thing OP needs to do is decide what to do with the money they are saving above the loan amount, e.g. shares/ETF vs interest savings account.

  • Lunarboogie on 10/05/2021 - 14:11
    +5

    All this naysaying about saving for a rainy day is bs. OP has nary had an issue in 7 years, so why will he all of a sudden enter into a purple patch of pain. He seems young and likely as fit as a malley horse, the bambino is just 3, and he is saving plenty. Just pay the thing off. And judging by your current rate of savings, you'll have saved enough to get that new car, or pay for the dog's surgery if and when the time ever comes. Keeping it open is just more baggage. Free yourself from its yoke and live life.

    • onetwothreefour on 11/05/2021 - 08:59
      +1

      What if they lose or half their income for say 6 months? that lump of cash sitting in the offset sounds like a good backup plan.

  • TheBilly on 10/05/2021 - 18:56
    +2

    I would just pay it off. Because at the rate you are currently saving to have paid off a mortgage in 7 years. The benefit of contingency money that people are saying your offset account provides, is negligible as you will have another big pot saved up in 6 months for any emergencies.

    • Quantumcat on 10/05/2021 - 19:49
      +1

      Good point

      However if they needed more money than just a regular emergency, like wanting to move and needing a deposit on the new place (no need for bridging finance), or buy an investment property or do some serious investing, it might be handy to have that large amount of money available sooner than it can be saved

      But if you know you're not going to do that, you're right it isn't worth paying the annual fee for that.

  • Lunarboogie on 11/05/2021 - 11:46
    -1

    Anything can happen in the future; COVID-19 has shown us this. But OP clearly has a good head on his shoulders and a proven record of making good on his debts. If disaster strikes, he'll either have enough squirreled away to deal with it or, in worse case, can wax it on card. I would stop worrying about wild card prophecies and learn to live life. After all in the lottery of life, we've all hit the jackpot just being Australian. World class medical facilities are free. Everything else is fine print.

  • Venustrap87 on 11/05/2021 - 12:58
    +1

    Live mortgage free is the key

  • TheFIREnanceGuy on 21/05/2021 - 22:57
    +1

    Consider debt recycling. Check with an accountant to see whether this is suitable for your situation

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