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Ask Paul: Is it worth the fees to pay off our mortgage early?

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Q. My husband and I are looking to pay off our mortgage in around six years.

We currently have a balance of $587,000 in a fixed rate loan at 4.99%, and we just made our last payment on our variable rate loan, which had an original balance of $100,000.

The original fixed-rate loan was for a three-year term, and we have nine months to go.

pay off mortgage early early repayment fee ask paul clitheroe

Having paid our variable loan in full, and with the ability to pay around $9500 a month, should I break my fixed-rate loan so I can make extra repayments?

Our current repayment on the fixed rate loan is $3660 a month. Is it worth paying an early repayment fee?

I am 37 and want to pay off the loan in six years but am I aiming for this too early?

I've heard there are benefits to still having a home loan balance in retirement but I'm not clear why this is the case. - Alisha

A. Hi, Alisha. If you have the capacity to pay it off, the idea of having a home loan balance in retirement is quite beyond me.

I have heard this before and I think what is meant is having an offset facility on your mortgage but paying this down to zero.

This means, technically, you would be able to withdraw funds if needed.

So if you had a $500,000 mortgage and a $500,000 balance in your offset account, you pay no interest.

But this also seems nonsensical to me. In retirement I can't see how your lender would be too thrilled to see you redraw the $500,000 at a time when you were no longer earning an income.

With the fixed rate loan, please check the break fees. If there is one, just save your monthly amount in an interest bearing online account.

If not, shop around for the best rate and add your savings to your new mortgage. I do think you should do this into an offset account. I don't think it will be useful in retirement but access to funds and flexibility are terrific while you are working.

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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
Colin
May 1, 2019 10.08pm

I think having a $100K safety net wouldn't be a bad thing but not $500k. Reverse Mortgages have a lot higher interest rate than current mortgage rates so I think it's a good idea to have a little available if needed. That's if the bank will let you.