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

Dear Paul,

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.

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? - Brett

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.

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