A mortgage is one of life’s biggest financial commitments, so making your final repayment is likely to give you a huge sense of financial freedom.
You’ll no longer need to make monthly payments, or regularly search for the best remortgage deals, and you’ll own your home outright, which is something to be celebrated. You may decide to splash out on a holiday, or home improvements now you’re mortgage-free, but it’s also wise to spend some time considering the best use of any spare cash you might now have available to save for your future.
Here, we consider some steps to take once you’ve finished repaying your mortgage, and your options for any money you might now have to spare.
Do your admin
Before you make your final mortgage repayment, you may need to check a few things, and do some paperwork.
If you’re making a lump sum payment to pay off your mortgage early, you’ll need to contact your lender to find out exactly how much you’ll need to pay and whether there are any fees involved. Check, for example, if any early repayment charges (ERCs) apply if you repay your mortgage early, and do your sums to make sure it still makes financial sense to take this step. Read more about these charges in our article Mortgage fees and costs explained.
Once you’ve paid off your mortgage, make sure to cancel any direct debits or standing orders with your bank that you set up to pay your monthly mortgage repayments.
You can also claim the title deeds if they were held by your lender or solicitor, and ensure the deeds show that the property is registered with HM Land Registry. You’ll pay a small fee if you want to keep an official copy of your property’s deeds, although this isn’t a legal requirement. If you live in Scotland, you can register your property with the Registers of Scotland.
Review your finances
You may want to spend some time reviewing your finances so that you can be sure your money is working as hard as possible for you now you’ve paid off your mortgage. You’ve one less outgoing to consider now, so you’re likely to have more spare cash available as a result. For tips on reviewing your finances in mid-life see our article Give yourself a mid-life money MOT.
For example, this process may include ensuring you’re on track for a comfortable retirement, and getting a State Pension forecast. Our articles How much should I save for retirement? and How can I get a State Pension forecast? may be a useful starting point.
If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.
There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
Of course, paying off your mortgage doesn’t necessarily mean you’ll suddenly be much better off, particularly when living costs are rising, or if you’ve just retired and your income has fallen. If you do have money to spare, you may choose to use this to make ends meet. Alternatively, if you’re currently working, you may want to reduce your working hours, particularly if you’re approaching retirement. Read more in our article How can I phase my retirement?
Pay off debts and build an emergency fund
If you have debts such as a personal loan or credit card debt, now may be a good time to focus on repaying these using the money you were putting towards mortgage repayments. Start by paying off the debt with the highest interest rate, and look at ways you might be able to reduce the interest you’re paying on others, for example, by moving your credit card debt to a balance transfer card with a lengthy 0% introductory period. Learn more in our articles How to take control of your debts and Balance transfer credit cards and personal loans compared.
If you don’t have an emergency savings fund, then focus on building one up. Generally, it’s considered sensible to have three to six months’ worth of income in an easy access savings account. Interest rates on savings accounts are currently very competitive after spending years in the doldrums. Read more in our article How to build an emergency fund.
Paying more into your pension
If you pay off your mortgage and you’ve still got several years to go before retirement, you may have plenty of time to build up a larger pension fund to contribute towards your retirement. After all, according to the Office for National Statistics (ONS), if you’re a 50-year-old man, you’ll live, on average, until the age of 85. If you’re a 50-year-old woman, you’ll live to an average of 87.
Whether you’re some way off retirement, reducing your working hours, or starting a new business, for example, there could be decades ahead when you’ll rely on pension income. If you save the money you’d been using to pay off your mortgage into your pension instead, this could make a significant impact on your retirement pot. For example, saving £600 a month into your pension over 10 years, assuming investment growth of 5% a year, an annual fee of 0.7%, and 25% tax relief, would result in a pot of £148, 403. That’s before any employer contributions.
If you pay more money into a workplace pension scheme, your employer may also pay in more, depending on your scheme’s rules. Check with your HR department to find out the particular details related to your workplace pension, as it’s worth maximising employer contributions while you are able to do so.
If you can build up your pension pot as well as have a mortgage-free property, you’re more likely to be on track for a comfortable retirement.
If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.
There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
Save into stocks and shares ISA
Another option you might want to consider now you’re no longer paying a mortgage is investing any spare money you have available into a stocks and shares ISA. Any investment gains in an ISA are tax-free, and this money could be used to supplement your retirement income.
By investing a set amount each month that you might have paid towards your mortgage into a stocks and shares ISA, you can build up a lump sum that may contribute to your retirement. Regularly investing can also potentially reduce the impact of stock market volatility on your investment’s performance. Read more in How do Stocks and Shares ISAs work? and The benefits of savings into a Stocks and Shares ISA.
Remortgage to buy another property
Paying off your mortgage frees up potential equity that may be invested elsewhere. For example, you might decide to borrow against your home to fund another property purchase, if you want to own a buy to let or holiday let. Alternatively, you may have dreamed of a second home or holiday home for your sole use, and now you’ve repaid your mortgage, feel the time is right to take the plunge.
Once you’ve arranged a remortgage, you can use the money you’ve freed from your home as a deposit on a new property as a deposit, or to buy with cash. If you’re seeking a buy to let property, you’ll need a buy to let mortgage, which are often interest-only, so you only pay the interest on your mortgage until the end of the term. You pay back the mortgage balance at the end of the term.
Bear in mind there are pitfalls when it comes to investing in a second property. You’ll pay an extra 3% stamp duty for starters, and any profits could be eroded by the tax you’ll pay on rental income, and other outgoings you’ll incur, such as mortgage and maintenance costs.
Read more in our articles How to invest in property and Is buy to let a good investment?
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