Paying mortgage to $0

Hi,

I am about to pay a loan split down to $0. I don’t want to get close the loan as I want to renovate with the money. I have spoken to the bank (nab) and asked what will happen with repayments and the 100% redraw. They said as soon as it goes to $0 they will close the account. Is this typically what happens?

 

Pay it down to $10 remaining?

 

Yes

 

When you pay off the loan in full, the banks close the loan, you loose access to the redraw.

I wouldn't recommend paying it down to just $10. The next P&I repayment will pay that off and close the loan.

Better to put your savings into an offset account.

 

Interesting thanks for the information

 

Ask them for a loan casting arrangement. CBA does a loan casting so they keep $1000 off your loan amount you pay $4 a month.

 

Yes.
Just redraw the money and put it into an offset account.

 

Hi Peter,

what happens to the loan if you have more funds in the offset than the loan it’s offsetting? PI repayment comes out with no interest?

 

If it didn’t bump up the interest rate .2% it would be good

 

The surplus funds in the offset (over the amount of the loan) does nothing, it's wasted.

If the loan is P&I, the loan will reduce each month by the repayment amount. So will the offset account. Eventually the loan will be paid off, but it'll take a lot longer to close than paying it down to $10.

 

Get an offset account attached to the loan and put your money there. Its what all the smart people are doing. Redraw is not a good strategy when it comes to maximising your funds. Just my opinion but Im sure its many others opinion too.

 

If you have the loan 100% covered then interest rate doesnt matter!

 

It does when you redraw for new lending on a new project.

 

I don’t think you understand what we are saying. You said you want to use the redraw to renovate. When you redraw, your loan balance increases again and therefore you pay interest. On top of that, you said you didn’t want to close the loan.
One way to do that is to have an offset linked to your loan. Redraw what you need, and put it into the offset. You won’t be changed interest if the amount in the offset is the same as the loan balance, only when you use this money.

 

I get it. However answer me this, the current interest rate is 3.5, if I add an offset it is 3.7. If I have $50k in redraw and send it to my offset as you said no difference. Then I spend $50k on renovations, I end up paying 3.7, how is that no different to 3.5?

 

You never mentioned that. I don’t pay extra for having an offset account.

 

And redrawing mucks up the purpose of your loan.(if using it for another IP)
Get a offset acc. as many here attest to.

You are splitting hairs with 0.2% over a possible $50k. = $100 per year!

 

Not using it for another property. And yes I did mention the difference in product interest rates.

How about this, and I know Terry and probably all of you will hate the idea. I'm selling IP2 and paying out the loan from lender 2. Then paying down as much as I can on IP1 with what is remaining. What if the loan on IP2 is a better product, what if I discussed with lender 2 exchanging the security and maintaining loan 2. Loan 1 would be paid off completely and IP1 would have loan 2 to cover the cost. I know I know purpose of the lending not security.

 

Split the loan in a way that there is a variable with offset for 50k and offset that 50k. Lock the rest at 4 years P&l at 1.9%

 

Ye and it would be even less if he paid the 50k down. I suppose could wait until interest rates go to 4% before doing it.