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Ask Paul: We paid off the mortgage but we're scared to close the account

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My husband and I are now retired and drawing on our super. We think we have enough money to "last". We have two adult children.

The mortgage has been fully paid out, but we haven't discharged it, which means we have access to $300,000 to redraw if necessary (a loan we could no longer get now we don't work).

Should we discharge the loan and get back our deeds or keep it? We could make a loan to our kids, but if they lost their job and couldn't keep up the repayments we would be in trouble. In these very uncertain times I am not sure what to do?

ask paul clitheroe we've paid off our mortgage but haven't discharged it

What a timely question, Maureen!

Linda also asks about giving her kids money and I posed a series of questions that really worry me. You have both worked hard to be in a position to gift or lend money to the kids, but your own security must come first. It is just a fact that you cannot rebuild your wealth, while your kids have plenty of time.

Frankly, I don't see you using the redraw, but who knows what the future holds? I would certainly keep it there. In decades to come, it could be used for you own reverse mortgage, but I suspect the bank may not be happy about "later in life" redraws.

This also leaves more money in super. In this COVID-19 era, super returns will be volatile, but over the longer term there is no reason to believe that the excellent assets held by a good super fund will not provide reasonable returns.

So, as with Linda, here we are again.

I applaud the idea of us helping our kids, but not if it drives us into poverty. As a minimum I would go to a solicitor and establish documents clearly loaning the money with set repayments.

A loss of work, relationship failure or business bankruptcy could see unsecured family money lost forever. In your case, where interest payments from your kids are important to your own future, it seems to me that a loan is only sensible if secured to property and the kids are in good jobs and have reasonable assets and job skills.

I leave it with you to determine your plans, but I applaud your caution. It is wonderful to help the kids when we can, but abandoning our own financial security is crazy.

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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