What Happens When You Pay Off Your Mortgage in Australia?

what happens when you pay off your mortgage in Australia

The road to homeownership may be long and winding but what happens when you pay off your mortgage in Australia? Well, a whole new world of opportunities opens up.

To help you manage the transition, we’ve put together an exhaustive guide that goes through all the next steps for you.

How to Discharge Your Mortgage in Australia

The first thing you must do after paying off your home is to discharge the mortgage. This means that you’ll need a Certificate of Title stating that your house has been fully paid off. To do this, you’ll need to:

  • Contact your lender or bank
  • Fill out the Discharge Authority form they’ll give you and submit it back to them (you can generally do this online)
  • Ask them to register your Discharge of Mortgage at the Land Titles office or do it yourself
  • Pay the fees required in your state or territory
  • Get your Certificate of Title
  • Remove the lender or bank from the deed on your house at your local Land Titles office

The process can take up to three weeks and cost you around $550.

What Can You Do After You’ve Paid Off Your Mortgage

Do a Financial Health Check

Before you can start enjoying the benefits of a paid-off house, you’ll need to take stock of your finances. Evaluating your debt and planning an income strategy should be prioritised. 

Your financial health checkup should cover your:

  • Goals and advice
  • Money management style
  • Assets, investments and wealth
  • Loans and debts
  • Insurance and contingencies

Review Your Other Property Costs

Property costs don’t just evaporate once you’ve paid off your mortgage, so you must make sure that you’re staying on top of everything.

Some of the ongoing real estate costs in Australia include:

  • Individual council rates like water, land, etc.
  • Strata fee—the quarterly or biannual contributions you need to make for the maintenance of the area around your property
  • Your home insurance 
  • Maintenance and repairs

Good Ways to Spend Your Extra Money

Paying off your mortgage is a huge accomplishment and something you should absolutely celebrate.

Afterwards, with a little bit of planning, you can make the most of your newfound financial situation. Here are some ideas on what to do after you pay off your house.

Travel

This would be a great time to pack your bags and splurge on a well-deserved vacation to one of your dream destinations.

Investing

  • Invest Money in Your Family

Opening savings accounts for your family members will help you provide for your loved ones in the long run or in financial emergencies.

  • Invest in New Property

If you’ve freed up some cash by paying off your mortgage, you might choose to invest in a new property. This can be a great additional revenue stream, especially considering the current housing prices.

However, it’s essential that you do your research first. Make sure to analyse the market and find a property whose value is likely to go up over time in order to maximise your investment.

  • Invest in the Stock Market

Investing in stocks can be a great way to grow your wealth over time. As a company’s value increases over time, so will the value of your shares.

Before buying stocks, it’s crucial to:

  • Choose a company you believe in
  • Diversify your investments
  • Be patient
  • Don’t overspend
  • Have a long-term outlook

However, if you’re new at it, you might want to consult an expert to provide you with all the information on securities, government laws, market conditions and financial circumstances. 

  • Invest in Your Retirement Funds

One of the smartest things you can do is invest in your retirement funds and ensure a comfortable twilight of your life.

Superannuation is a method of saving for retirement wherein your employer contributes to your super fund. There’s an option for you to add additional funds directly from your bank account.

  • Investing in Managed Funds

Managed funds allow you to pool your money with others and invest in a variety of assets and shares that are acquired and traded by a manager.

It’s an option that provides you with steady returns while diluting risks and reducing your exposure to any one asset.

Start Your Own Business

If you’ve had a business idea you’ve wanted to get off the ground for a long time but your home loan has been hampering your entrepreneurial plans, starting your own company can be a great plan for life after your mortgage is paid off.

Of course, going it alone always comes with a certain level of risk so make sure you’re prepared for any challenges that might come with it.

Make Deposits into a Savings Account

Developing a healthy savings habit is always good, so the sooner you start setting money aside for a rainy day, the better.

The Pros and Cons of Paying Off Your Mortgage

Let’s look at the benefits of having a paid-off house versus the drawbacks.

The most important gain is no longer having to pay interest as the average variable rate in Oz is 3.32% while the average fixed rate is 3.49%.

Also, with all your mortgage payments dealt with, you’ll be better prepared for any financial emergencies.

The faster you pay off your debt, the better because the bank holds the property title on your house until you close off your loan.

However, one negative aspect of it is that you won’t be able to take advantage of mortgage loans’ low-interest rates and borrow against your home’s equity to make other investments. You could even use that redraw to increase the value of your house further through renovations.

If this isn’t for you, however, you can save for your golden years and put the money into your super account. After all, homeowner retirees spend only 5% of their income on housing while renters—about 30%.

Another boon of paying off your mortgage early is that you can consolidate other debts that have higher interest rates than these types of loans do. Also, mortgage interest is tax-deductible if you’re renting the property out.

Before You Completely Pay Off Your Mortgage

You should start preparing to pay off your mortgage by looking over your mortgage terms to see if any exit penalties or closure fees apply. 

If you haven’t paid off your home loan fully and have just a small amount left to go, you can switch it to interest-only. However, keep in mind that it’ll come with higher rates.

If you have other debt with higher interest rates or repayments, it’s wiser and better to pay that off first and then put the extra money towards paying off your mortgage.

You should also see if paying off your PPOR might bring your total financial assets below the means test thresholds for social security or welfare benefits.

Tips for Paying off Your Mortgage Early

If you’re determined to fast-track your mortgage repayment, there’s a variety of routes you can take.

For starters, make sure that the loan you get for your house is a principal and interest loan instead of an interest-only one. That way you’ll be paying off both at the same time instead of just the interest for a certain time.

Making extra payments can speed up the process. For example, investing your tax refunds or annual bonuses into your mortgage payments is a smart approach.

Also, if you switch from monthly to fortnightly payments, you’ll end up paying off your mortgage early. 

If you’re able to keep the balance at a substantial sum, an excellent option is to open an offset account that’s linked to your mortgage. The higher the balance on it, the lower the loan amount you’ll be paying interest on. 

In specific circumstances, you can withdraw from your superannuation to make mortgage payments. However, you’ll have to be in dire financial straits, have arrears or have fallen behind on your council payments.

The requirements for using your super to pay off your mortgage are:

  • You’re at risk of losing your home because the lender or council wants to sell it.
  • There’s no one else who can make payments because you own the home.
  • You have no other way of paying the arrears except to access your super.

Bottom Line: Scrimp or Splurge?

Ultimately, what happens when you pay off your mortgage in Australia is up to you. If you’re tired of pinching pennies, you can relax a bit and have some fun.

However, if you’re more investment-minded, there are a plethora of opportunities for you to prepare for the future, which we’ve covered in detail above.

In any case, enjoy your paid-off home! You’ve earned it.

FAQs:

1. What is the average age to pay off a mortgage in Australia?

The average time to pay off a mortgage in Australia is between 10 and 30 years.

Since Aussies usually buy their first homes in their 30s or 40s, they generally pay them off by their 50s and 60s, but it’s becoming increasingly common for people to still have mortgage payments to make into retirement.

2. Are there any reasons why you shouldn’t pay off your house early?

Some of the reasons why you shouldn’t rush to pay off your house are:

  • If you have a low-interest rate, it’s better to pay off your house on schedule and put the extra money into emergency savings, for example.
  • Real interest rates are currently negative due to the high inflation.
  • Debt can be good if used wisely.
  • You could get slapped with exit and early termination fees.

3. What to do once the mortgage is paid off?

There are many options to choose from, ranging from leisure to investment.

We’ve listed the best ones further up in our guide on what happens when you pay off your mortgage in Australia.

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