At the start of taking out a 20 or 30 year home loan, making the final mortgage payment may seem like a distant dream. But before you know it, the time has arrived when you can finally hold the title deed to your property.
You now have two options:
Make the last repayment, close the home loan facility and claim your title deed, or
Continue to pay a monthly fee to keep the facility open as an easily accessible line of credit.
Accessibility
There are several advantages to keeping your home loan account open after you have paid it off:
You can access all the funds you have paid on your bond, up to the original amount to finance a vehicle or studies, for instance.
You can use the funds to help finance a second property.
There is no need to raise a further mortgage, which can be expensive and time-consuming. There is also a possibility that you may no longer meet the criteria for having a home loan granted at the time when you need the funds.
The interest charged is lower than on other forms of credit, such as credit cards, short-term loans, or vehicle finance.
Disadvantages
If you decide not to close the account the bank will retain the title deed.
The bank will also charge a monthly service fee to keep the account open.
Access facility
Even if your home loan doesn’t already have an access facility, your bank may allow you to apply for one when you pay the final instalment but keep the account open.
This can be an excellent source of emergency funding, provided you manage the account carefully and repay any amount that you re-borrow as soon as possible.
However, if you think you may be tempted to use it to fund an otherwise unaffordable lifestyle, you are probably better off closing your home loan account and holding onto your title deed.
Final choice
Whatever you decide, before you make the final repayment you need to let your bank know whether you intend to keep the home loan facility open or to close it.
Consider all the pros and cons of each option before making your final decision. Find out from your bank what costs are involved and consult a financial adviser for professional advice on the best options for your situation.