If you manage to pay your mortgage completely, or are close to doing it, then you’re a lucky one. Only last year, over 1.4 million Australians were under mortgage stress, on the verge of defaulting and at risk of losing their homes.
Because you worked hard, paid your mortgage on time, and went through challenging financial hurdles, you’re free of this home loan and away from any default or mortgage tension. Now it’s time to put your feet up, relax, and enjoy the home you worked so hard for…
But before you get too comfy in that armchair, admiring your “Paid in Full” stamped documents, let’s just have a quick look at the road ahead to make sure you keep building on the healthy habits that allowed you to pay off your mortgage.
What should you do next?
Your house is now paid in full, but a few things may be left to do – such as getting your house deed, paying administration fees, and updating your insurance. Here’s what to consider:
Get your house deed
After paying the debt, the lender will send a letter of satisfaction to the county or city office, explaining that you’ve paid for the property. This means the mortgage is cancelled, and you’re now the sole home proprietor.
In some cases, the lender will send the letter of satisfaction directly to your home along with a note stating that your debt is paid. If this happens, you’ll have to visit the local office to inform them about the mortgage release.
In case the lender doesn’t send any of the documents (unlikely, but still), you’ll have to:
- Contact the lender directly and ask to terminate the loan agreement as agreed
- Ask for the documents related to the paid mortgage, including all original files
- With the documents in hand, go to the local office and verify that your name is written off any home loan
Once you do that, the local records should show that you have no outstanding mortgage and you’re now the sole proprietor of the house. The office should then hand you the house deed.
Update your home insurance
One huge problem with home insurances is that previous proprietors often stay on the insurance policy until the debt has been paid off.
When this happens, any insurance claim will include your name as proprietor and the names of previous ones. This could cause unnecessary delays and frustrations, especially if you’re waiting for reimbursements on repairs or improvements.
To prevent this, follow these tips:
- Contact the home’s insurance company and tell them to write off previous owners as you’re now the sole proprietor
- Remove any bank account from previous owners related to the premiums and payments to the insurance
- Cancel any insurance policy and plan that you’re not part of
After doing this, you will avoid not only frustration but also possible lawsuits and other legal issues.
Clear out other fees
Many lenders, insurance companies, and realtors often issue additional fees related to administrative processes, such as taking care of the house, protecting liabilities, and more.
These fees can accumulate over time, requiring you to pay for them in full before you can call it quits. While the costs may not be seen as debt, it is worth paying them entirely for you to end on good terms with everyone involved.
In case you need to buy a new house later on, having a debt-free relationship with the other parties will be a huge advantage.
Where should you put your money now?
Pay off other debts
Australian households have one of the highest average debts in the world – at times Australians have been spending 200% of what they’ve been earning. Now that you’ve paid off your mortgage you will – happily – not be among the most indebted Australians, since mortgages typically represent the largest source of debt.
However, whether we’re talking general credit card debt, auto loans, student loans, or a small credit to boost your business, these debts are slowly siphoning away your hard-earned coin; paying them off in full could save you thousands of dollars a year.
We recommend starting from the highest-interest debts first. Then slowly go down the scale, paying them off one by one until you’re entirely debt free.
With a practical cash-flow management system in place, using the surplus from your monthly income to pay any remaining debt will be a piece of cake. You did it once already with your mortgage, just apply the same principle and wipe those debts out!
ALSO READ: 4 Essential Tips in Wealth Management
Building a healthy savings habit is the cornerstone of any wealth strategy. From a simple savings account with the bank, or investing in your super, stocks or more properties – the important thing is to have a financial structure in place to help you control your spending. You’ve already done marvelously in paying off your mortgage, but now is not the time to get complacent! Don’t fall into the trap of eschewing the positive habits that got you here (an unfortunately common occurrence in recently debt-free people).
With a healthy savings account, many aspects of life become easier, like planning a wedding, going on a trip, or pursuing that business idea you’ve always to.
Build an emergency fund
During the COVID-19 pandemic, countless new homeowners saw themselves struggling to pay for their mortgages as they lost their jobs or their employers went bankrupt. This pushed the government to give them a mortgage holiday, letting them pay their debts later on.
Events like COVID-19 don’t happen every year (thank goodness). But they do happen, sooner or later, and may affect you directly. And the government may not always be this supportive, so it pays to be prepared.
Building an emergency fund on the side can be a lifesaver for unprecedented times like this. We recommend having at least four to six months of expenses saved. These savings can act as a cushion to soften your financial fall, should you experience an adverse turn of events, giving you enough time to get back on your feet.
Invest in your family
With less financial stress from mortgage payments, you’ll have a lot more time, money and freedom to invest in what really matters: your family.
Australians are having a hard time going on parental leave due to their mortgage payments. Similarly, prices for education are rising more and more over time. And if all that wasn’t enough, prices for private health insurance are increasing exponentially.
Luckily, once your home loan is paid off and you’re free of debt, investing in your family’s future will be more comfortable, less stressful, and more fruitful. Whether it is welcoming a new member of the family, paying for quality education, or ensuring your loved ones’ health, this is the time to do it.
Invest in new property (with low interest)
While getting out of one mortgage to enter into another may seem counter-intuitive, it may actually be a wise decision. With mortgage rates decreasing year after year, to a surprising low of less than 2% in some cases, buying a new home with a loan doesn’t sound so wrong.
The best part is that you’ve already paid for one mortgage. You know the discipline and diligence it takes to do so. So, why not try and get a new house or apartment now that you know it’s not rocket science? There are numerous financial benefits to owning an investment property, which we won’t get into here, but a few of them include generating a passive income, helping with strategic tax breaks, and increasing your asset portfolio to unlock greater investment opportunities.
Invest in the stockmarket
Investing in shares has a notoriously risky reputation – in reality, it’s only risky if you don’t know what you’re doing. Your investment is significantly safer in the hands of a qualified professional, and free from the perilous market swings and dramatic plot twists shared by Hollywood or “that guy your friend knows”.
Over time, investing in the stockmarket has proven to be a safe, reliable way of gradually building wealth. There a number of strategies you can take depending on your investment amount, strategy, and appetite for risk. Consult your financial planner for the best stockmarket investment advice.
Boost your superannuation and retirement funds
One of the easiest ways to ensure an early retirement is to invest in superannuation. While retirement age may be a far-away thing for you, it is not something to take lightly either. According to data, Australian retirees are finding it harder to retire comfortably.
If you keep a modest lifestyle, and invest in your retirement funds and superannuation early on, you will be able to max them out sooner. Especially now that you have no other significant debts to tackle, you’ll be investing in a more comfortable and stress-free retirement. You can even ask for a small loan and build up your superannuation as an investment for your retirement (we’ll cover this tactic in a future article).
Get professional financial help now
Make the most of your post-mortgage financial plan with Raeburn Advisors. We’ll take a detailed look at you finances, in combination with your goals and objectives, and help you maximise your investments, pay off any other debts, and set you up for a great retirement.
Book an appointment with us and let’s examine your new goals and how you can reach them.
This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.