If I pay off the house early, will the bank give me the house as a gift?

The dream of owning your own home is a big one in Australia. And let’s face it, the idea of paying off your mortgage early and skipping years of repayments is incredibly appealing. But some misconceptions can linger around the process. One such question that pops up occasionally is: if I pay off my house early, will the bank simply give me the house as a gift?

The answer, while not quite as exciting, is still positive. Here’s a breakdown of what really happens when you make those final mortgage repayments in Australia:

The Reality of Early Repayment

While an early payoff won’t result in a free house, the benefits are significant. Here’s what you can expect:

• Saved Thousands: The biggest advantage is the substantial amount of money you’ll save on interest. Over the life of a loan, interest payments can add up significantly. Paying off early eliminates those future charges.
• Financial Freedom: Once the mortgage is gone, a much larger portion of your income is freed up. This can be used for savings, investments, or simply enjoying a lighter financial burden.
• Peace of Mind: There’s a sense of security and accomplishment that comes with full ownership of your home. You’ll no longer have monthly mortgage repayments hanging over your head.

What Happens to the Ownership?

The ownership of your house remains yours throughout the entire mortgage term, regardless of early repayment. You entered into a loan agreement with the bank, promising to repay the principal amount plus interest over a set period. Early repayment simply fulfills that agreement faster.

Things to Consider Before Early Repayment

While the advantages are clear, there are a few things to keep in mind:

• Exit Fees: Some lenders in Australia might charge exit fees for early repayment. These fees are typically a percentage of the remaining loan balance, so factor this into your calculations.
• Opportunity Cost: The money you use for early repayment could be invested elsewhere, potentially generating a return. Weigh the potential interest savings against the returns you might get from other investments.
• Emergency Fund: Ensure you have a healthy emergency fund set aside before prioritizing early repayment. Unexpected expenses can arise, and having a safety net is crucial.

The Takeaway

Early repayment of your home loan can be a wise financial strategy in Australia. While it won’t result in a free house from the bank, the long-term financial benefits and peace of mind are substantial. However, carefully consider any exit fees and opportunity costs, and make sure you have a solid emergency fund before taking the plunge.

Remember, consulting with a financial advisor can help you determine if early repayment is the right decision for your specific financial goals.