Should I Leave My Mortgage Open?

  • Dear Dollar Stretcher,

    I'm Canadian - Live in Canada - Vancouver Island, BC.

    Today I got a call from the credit union telling me my house mortgage is now paid out.

    They then asked me if I wanted to de-register the mortgage - at a $75.00 fee, or leave it as it is, in case I needed money for a renovation or a new car etc. I n which case I wouldn't be subject to legal fees for a new mortgage.

    Not being incredibly smart - money wise - I thought I'd best ask.

    What difference would it make to me? I'm 65 years old.

    thank you

    John

     

    John,
    I'm not an expert in Canadian law, so you might want to check this with a local expert. But I believe that they're asking you if you want to have an open and available line of credit on your house under the current mortgage agreement. You might want to ask the credit union how you would access those funds if you wanted to say buy a car, how the interest rate would be determined and what type of payment plan would be in place.

    If you 'de-register' the mortgage you wouldn't have those funds available.

    The choice to close the mortgage could have a small effect on your credit score. One thing that's included in the calculation is how much credit you have available to you. If you leave it open you'd have more funds that you could borrow quickly. That could lower your score.

    But having unused credit or using a smaller percentage of available credit can help your credit score.

    You haven't mentioned your score, but given that you've paid off your house I'm assuming that it's in the good range. So either choice shouldn't make a big difference in your score.

    So the choice is really your's to make. Sure it's nice to know you can get money if you need it, but if you have no plans to borrow there may be no reason to leave the mortgage open.

    Thanks for a good question.
    Gary

     

     


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