Charleston Business Daily

A question for any Australian banking finance experts out there!?

My sister and brother-in-law have a relatively small amount owing on their long standing home loan account and are debating whether or not to pay the loan out. Specifically, they are thinking it may be better to keep the loan and related mortgage documents in place in case they wish to take out another loan in future. Does this make any sense? Could it help avoid any future loan set-up costs for example? Any other likely savings or advantages?

Public Comments

1. It doesnt make sense... Pay the loan off... and you end up paying yourself the interest you were paying as a raise.. The good credit will follow them for years to come, long after they pay loan off...
2. They should pay the loan of in due haste. Having the loan sitting there is costing them money. Furthermore, paying it off faster makes them look like better borrowers. It will be cheaper for them if they pay the debt off now, and start saving for a deposit for their next place. A good savings history will improve their chances of getting a loan. Furthermore, the fees and charges for setting up a new mortgage will be far less than the interest they will most likely pay if they keep that mortgage sitting there for 12 months or more. If they have an exisiting loan, that will count towards their debt to income ratio when they apply for a new loan, so they'll be struggling to prove they can manage the existing mortgage and the new loan. Get rid of the existing mortgage, and then all they need to prove is that they can handle the new loan. It will give them more of their disposable income now that they don't have to make mortgage repayments. It is always better to be debt free. And if they need to borrow in future, having some savings will mean they can borrow less. They should pay it off, then save, then get their second loan, unless there is another damn good reason why they shouldn't, like they need the redraw facility on their loan. But if they have no mortgage when they pay it off, it will be very easy to save a large amount quickly. They should check what fees apply for early termination of the loan. Chances are, they won't be as high as the interest they'll pay by having the debt for 12 months. Get a calculator out and use some of the loan calculators on the Yahoo7 personal finance site. I'm an Aussie too. Best wishes
3. You can the loan down and have a token balance owing to the bank (say $10) this way the interest bill would be almost nothing, if they are in front of the loan repayments they may have access to what is known as redraw. The benefit of doing this is they need money fast for a car or health reasons they can just access the funds by redraw rather than going through the whole loan application process. In some cases this could take up to 30 days to set up a new loan. It is always advised that they speak with a professional when they are thinking about doing this kind of thing. So they can further explain in the pros and cons (rather than me writing War and Peace here). James Grady Mortgage Planner http://www.theNEXThomeloan.com