What happens when you pay off your mortgage

You've finally paid off your mortgage after years of financial discipline. Congratulations! You finally own your home. But before you start celebrating, it's important to take the necessary steps to discharge your mortgage and ensure your property title is clear. Once that’s taken care of, you can focus on putting your extra cash to work and growing your wealth.

You have a variety of options for saving and investing your money. Your financial objectives and risk appetite determine the best option for you.

A mortgage is a long term commitment and you may be wondering what happens when you pay off your mortgage in Australia? Well, if you don’t have any other loans secured against the property, you now fully own it. However, before you can claim full ownership, there are some essential steps you need to take to discharge the mortgage and clear the title.

After this process, while you may no longer have mortgage repayments to worry about, it doesn’t mean your home is entirely cost-free. Ongoing expenses such as council rates, strata fees (if applicable), home insurance, and other property-related costs will continue to be your responsibility.

Discharging your mortgage

You will most likely have to discharge your mortgage once you've paid off your home loan in full. The procedure of formally removing your lender from your Certificate of Title is known as a discharge.

Notifying your lender is usually the first step in discharging your mortgage. They'll give you a Discharge Authority Form. Complete and return this form, then register your Discharge of Mortgage with your state or territory's Land Titles office. You may have to pay a discharge fee to the lender to complete the process and finally close your home loan.

Life after your mortgage is paid off could offer you more financial freedom. You'll have money to use for other things now that you don't have a regular home loan payment hanging over your head. You may be able to go on a holiday, buy something you've always wanted, or renovate your home. You might also be able to put your money into other investments to try to increase your wealth.

Here are some of the asset types you could consider thinking about:

• Shares
• A new property
• Your business
• Term deposits
• Managed funds
• Personal contributions to your superannuation fund
• Cryptocurrency
• Crypto assets like NFTs or cryptoart

It’s worth noting that no investment is completely risk-free. It’s important to analyse what you expect from your investment, such as the time period you wish to stay invested and the returns you expect.

Generally, the higher the risk you’re willing to take, the higher is the probability of better returns. But the probability of better returns is not a guarantee that your investment will perform. As most investments are market-linked, you cannot predict their future performance and there’s always the possibility of losing your money.

You could speak to a financial adviser about investing your money in a diversified portfolio of assets with varying risk profiles to reduce your investment risk. You could also park some of your money in a savings account where you could access it easily.

Your goals should ideally determine which investment plan is best for you. Do you want to significantly increase your money over the next five to 10 years? Do you wish to begin saving for your retirement consistently and securely? Do you want to be able to provide financial security for your family long after you've passed away?

What level of risk are you willing to take? Are you ready to take out a loan to fund the investment, or would you prefer to pay for it yourself? Answering these questions will help you in determining the best investment option for you.

Investing in shares, for example, could be one of the options if you're willing to accept a certain level of risk in exchange for significant potential returns. Look at the steps you may take to raise your superannuation balance if you want to ensure a secure retirement.

Your age also plays a role in helping you decide on the right investment option. If you’re nearing retirement, you may want to consider the potential risks of putting your money into certain asset classes, such as cryptocurrency. However, if you’re young, you may be more willing  to invest in a few volatile assets that offer high returns but are also more prone to market risk. At any age, it’s important to understand the risks associated with any type of investment before putting your hard-earned money at stake.

Another important consideration that could influence your investment decision is your budget, as you should select an investment plan that you can afford. Investing in real estate, for example, takes a significant expenditure of capital, whereas making regular payments to a high-interest savings account is considerably more accessible.

When it comes to investing, there are a few potential pitfalls to consider avoiding:

1. Adding to your debt

If you've recently paid off your mortgage, consider if you truly want to take on more loans. You might be better off avoiding borrowing extra money because the financial and emotional stress of keeping up with repayments might wear you down. 

2. Getting into financial trouble

You might not want to take on too much financial risk depending on your circumstances. You'll be considerably closer to retirement than you were when you initially took out a mortgage, so think about the financial ramifications if your current investment plans fail.

3. Putting the house at risk

You've worked hard for years to pay off your mortgage and make your home your own, so any investment possibilities that could risk your property should be carefully considered.

4. Expecting overnight wealth

Whatever option you choose, keep in mind that there are no guaranteed routes to fast money. If an investment appears to be too good to be true, it almost certainly never is.

Life after paying off the mortgage can be more relaxed and less stressful. Some planning, investing, and saving could help you build up your wealth securely.

If you’re looking forward to what happens after your mortgage is paid off, you might be searching for effective ways to achieve that goal sooner. Here are some potential strategies that could help you pay off your mortgage early:

Make extra payments towards the principal

One approach is to pay a bit more than your regular monthly mortgage payment so that the additional funds are directed towards the principal balance. This strategy can reduce the total interest you pay over the life of the loan and help you repay your mortgage faster.

Whether it’s a lump sum when you receive a bonus or just rounding up your monthly payment, every little bit can help reduce the time you spend paying off your mortgage.

Refinance to a shorter term

Another option is to refinance your mortgage to a loan with a shorter term, preferably with a lower interest rate. While this will likely increase your monthly payment, the reduction in interest over the life of the loan can make a significant difference, allowing you to become mortgage-free sooner.

Consider switching to fortnightly repayments

Switching to a fortnightly payment plan could help you repay your mortgage faster. By making a half-payment every two weeks instead of a full payment once a month, you could end up making one extra payment each year. This additional payment goes directly towards your principal, helping you reduce the balance faster and cut years off your mortgage term.

Deciding whether to repay your mortgage earlier is a personal choice that depends on various factors, including your financial situation, goals, and the terms of your loan. Here are some pros and cons of paying off your mortgage earlier:

Pros of repaying your mortgage early:

• Interest savings

Paying off your mortgage early can save you a substantial amount of money in interest over the life of the loan. The sooner you reduce the principal, the less interest you will pay.

• Financial freedom and security

Becoming mortgage-free can provide a strong sense of financial security and peace of mind. Without a mortgage payment, you may find yourself with more disposable income each month to allocate towards other financial goals or investments.

Cons of repaying your mortgage early:

• Opportunity cost

A mortgage is often considered low-cost debt because it’s secured against your property, typically resulting in lower interest rates compared to other loans. For some, repaying a mortgage early might represent an opportunity cost, as the funds used to pay off the mortgage could potentially be invested elsewhere.

For instance, by investing in the stock market, you might earn returns that exceed the interest savings from paying off the mortgage. However, it’s important to remember that returns on investments are not guaranteed, and you should consider your risk appetite before making a decision.

• Loss of liquidity

Having a mortgage with available equity can give you access to an almost instant line of credit at a relatively low interest rate, which can be especially useful for financial emergencies or opportunities.

By paying off your mortgage early, you’re locking up a significant portion of your wealth in your home. If you need cash in the future, accessing those funds might require taking out another loan or selling your property, both of which come with their own risks and costs.

Repaying your mortgage early can offer peace of mind and financial security, but it’s essential to weigh these benefits against the potential opportunity cost and loss of liquidity. If you’re nearing retirement, paying off your mortgage could help you achieve a debt-free lifestyle. However, if you’re in the growth phase of your financial journey, you may want to speak to a financial expert to better understand the impact of your mortgage on your long and short-term financial goals.