Q&A - Empty pockets

By Nila Sweeney | 23 May 2008

Q. I took over a mortgage in 2001 and increased it to purchase a vehicle in 2003, and so find myself at 56 with no funds with which to maintain my 20-year-old property. I have a few thousand dollars in my redraw facility. Should I pay interest-only and change to a line of credit?
I have enough super upon retirement to pay out my mortgage.
A. I suggest you see a qualified financial planner to get some expert advice on your situation.
I’d hesitate going for a line of credit as the interest rates are often a lot higher, and technically you never have to pay it down, so you maintain your debt instead of reducing it. A redraw facility is often the cheapest of the loans, just make sure you don’t use your redraw facility too often.

To reduce your loan payments, you have a couple of options. The first is to refinance the loan to a new term (the longer the term, the smaller the repayment). You can also split your loan so that half is principal and interest, and the other half is interest-only. I’d discourage making the entire loan interest-only, as again you wouldn’t be reducing any of the debt. Finally, there’s a product known as a ‘reverse mortgage’ or ‘equity release’ loan, whereby the lender will lend you money on your property, but take an ownership in it, taking possession when you die or recouping funds if you sell.

Related: Home Loan Calculator


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