Ask Paul: Pay off mortgage or keep it as a line of credit?


Brett: I am 42 and my wife 40, with three children. We have paid our mortgage to 99% but plan to renovate in the next two years.

To ensure the loan does not get to 100% we have reduced the monthly repayment to the minimum and are moving all excess money to an online savings account with a bonus interest reward.

When the mortgage gets to 99% we redraw the minimum amount of $2000, which does not incur a fee.

ask paul paul clitheroe home loan mortgage offset account redraw reno renos renovate house renovations

Should we close out our mortgage and apply for a renovation loan when needed or keep the current home loan at 99% and enjoy the security of having a pre-approved line of credit and safety buffer?

Paul: Good job, Brett. It's great to get that home loan nearly paid off at a pretty early stage in your life.

An offset account may have made this all a bit easier as you could had paid the mortgage down to zero, then redraw to renovate, but the most important thing is that you have been great savers.

I would go with your second option.

Keep your current mortgage and draw down as needed. As you say, the pre-approved loan and safety buffer is a great thing. It should also lower any costs if you had to apply for a new loan.


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.
jenniel neieln
December 11, 2019 1.37pm

We are now mortgage-free, now what to do next.... we have decided to move with 12 months but my husband hasn't worked for 3 months ( work Injury, no income). should I keep my home loan account open, a very basic account, no redraw?

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