Draw down to pay for ren­o­va­tion

With the mort­gage well un­der con­trol, Brett can ...

Money Magazine Australia - - ASK PAUL -

Q 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 mort­gage 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.

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

Good job, Brett. It’s great to get that mort­gage nearly paid off at a pretty early stage in your life. An off­set ac­count on your mort­gage 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.

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