Source
r/PersonalFinanceNZ•
ChewingBree

What are the mechanics of paying down mortgage accounts when nearing $0 balance?

I am already aware of the concept of paying down the mortgage and not discharging it... this question is more about the specifics of the accounts.

I am with ASB, home loan is in three loan accounts (fixed term A, fixed term B, Orbit revolving)

I use the Orbit account as my daily account, making use of the overdraft facility sometimes, but generally speaking this account is in the black. Automatic recurring payments go out from the Orbit account to the fixed term accounts, and I'm pretty sure that I didn't set those recurring payments up, it was done automatically by the bank (but tbf it was several years ago so I don't remember...either way it doesn't show up with my normal list of upcoming scheduled payments).

Now, Fixed term loan account A is going to be paid off in the next short while. I actually intend to let it go floating with the small outstanding balance, and make some lumpsum payments to finish it off to $0

Do I need to do anything to stop automatic payments to that loan account from the Orbit account?
Will that loan account A cease to exist as soon as it is paid off? Or will it sit there with a zero balance?
Will someone from the bank reach out to me when that balance is $0 or do I need to chase them up for anything (like stopping the automatic payment)?

Posted Jun 17, 2023, 4:30 AM UTC

18
skiwi17•

No, the loan will repay itself and automatically close off, you won’t even see it on your internet banking. No further deductions will be made from your account for the loan, again they’ll automatically stop and it’s unlikely anyone from the bank will contact you, I’d be surprised if they did.

13
ChewingBreeOP•

Thanks!

3
cthulthure•

Yeah the ap just stops and the mortgage a/c is closed, no fanfare.

5
ChewingBreeOP•

Thanks. Will need to provide my own fanfare then!

7
Jinxletron•

So you'll get the "your fixed rate is expiring if you don't do anything you'll be on the floating rate and your payments will be X" communication.

Your payments will continue until the loan balance is zero. If you clear the balance and there's still interest that hasn't yet been applied to the loan, that'll end up being your last payment. Or contact the bank to get a correct payoff figure for X date.

Eta if by some weird timing you managed to overpay, you'll get any positive balance returned to your account.

3
ChewingBreeOP•

Great additional info, thank you

1
steel_monkey_nz•

What the others said then you should also get a letter in the mail letting you know it's done

2
AussiInNZ•

One expensive step

Upon reaching zero the bank still retains a legal hold on your title, the registered security for the mortgage.

If you ever want to borrow again for something eg. A boat or car, then this is convenient because the bank will lend easily due to the security document in place.

If you want the bank totally removed from any control of your property, removed from the title, then you need to pay a lawyer to contact the bank and get agreement to discharge this from your title, same as if you were selling the house. Will cost you $800 or more to do this I guess.

Anyway, this registered interest against your title is a little known, but large, cost at the end of your mortgage.

-1†