If you're nearing the end of your home loan you can keep the loan open using your offset account or you can repay and close the loan.
By paying off your home loan you can enjoy being debt-free and having the extra cash.
You have a number of options of what to do with the cash, like saving, putting it into your super or investing it.
If you're coming to the end of your home loan the first thing you need to do is decide whether you want to repay the loan or keep it open.
But if you've decided to repay the loan, it's time to think about what you can do with the extra money you'll have from repayments.
How to discharge your mortgage
Once you've paid off your home loan in full, you will need to discharge your mortgage. A discharge is the process of formally removing your lender from your certificate of title. It's an important process to follow and will save you from complications if you ever plan to sell your home.
The first step in discharging your home loan is notifying your lender. It'll provide you a document known as a discharge authority form. Complete and return this form, then register your discharge of mortgage at the land titles office in your state or territory.
Where you could invest your money after you discharge your mortgage
Now that you no longer have a home loan repayment hanging over your head, you'll have money freed up for other purposes. You could take a holiday, splurge on something you've always wanted or undertake some renovations. Or, you could invest your money elsewhere and try to grow your wealth.
Here are a few of the asset classes you might consider:
Buying shares allows you to become a part-owner of a company. As shares in a company are traded on the stock market, the price of shares fluctuates up and down. Investing your money in shares involves buying stock in one or more companies. There are 2 main ways to make money from shares:
Buying shares when they are priced low and selling them when the share price increases
Through regular dividend payments, which are payments companies make to shareholders to allow them to share in the company profits
Shares can also be referred to as stocks, equities or securities. You can invest in shares traded on the Australian Stock Exchange (ASX) or international shares traded on stock exchanges around the world. There are a variety of ways to invest in shares. You can buy and sell through share trading platforms or through the services of a financial planner or stock broker. You can also invest in a portfolio of stocks through a managed fund or exchange traded fund (ETF).
Benefits and risks of investing in shares
Strong potential for long-term capital gains. It can be possible to make large short-term gains, but it involves taking on a much higher level of risk.
Dividends can be used to create a regular source of income, while trading shares from the comfort of your own home.
Shares are not guaranteed to turn a profit. Shares in a company can experience dramatic price drops – even to zero.
The value of your shares can fluctuate from one day to the next. The dividends you receive can also rise and fall.
Investing in shares may only be suited to experienced investors.
The property market has delivered lucrative returns for many Australian property investors over the years. Investing in property typically involves buying a property at an affordable price and then renting it out to generate rental income. Once the value of the property has risen to a suitable level, the investor can then sell the property for a capital gain.
There are a variety of ways you can invest in property:
You could choose to buy a property to rent out to generate cash flow or you could try to buy and sell for capital gain.
You could choose to invest in a real estate investment trust, or REIT. REITs pool investors' money to invest in various properties, and trade as securities on the stock market.
There is also a growing trend of investing in real estate through crowdfunding. This burgeoning model allows investors to own a portion of a property or properties, and to make returns based on their fraction of ownership.
Benefits and risks of investing in property
As a general rule, property can be less volatile than shares and some other asset classes. If you do your due diligence and purchase a property in the right location, there's potential for substantial capital growth, while the chance to take advantage of rental income is another bonus.
You can choose to live in the property if the need arises.
There's a risk that the value of the property goes down, rather than up.
You need to consider extra costs such as mortgage repayments, stamp duty and property maintenance fees. Entry costs in particular can be very high.
Not possible to sell off part of your property investment if you need access to cash quickly.
Another option you might want to consider is investing your money in a business. Rather than investing in shares, which involves buying a small portion of a publicly listed company, this refers to taking ownership of a business and using it to generate wealth.
Benefits and risks of investing in business
If you set up a well-run business in the right industry at the right time, you could enjoy substantial returns.
Businesses also give you the chance to pursue your creative pursuits and achieve a level of personal fulfilment that most other investments don't satisfy.
Running a business is risky, especially if you've never done it before. There's a risk that the business will go bust.
You'll need to be very hands-on when managing your investment and this may take a lot of time and effort.
Superannuation is a way to save for your retirement. Contributions can be made into your superannuation fund by your employer and topped up by contributions from your own bank account. While these contributions accumulate, your super balance is invested by your super fund into assets such as stocks, property and bonds, to help boost your retirement savings.
Benefits and risks of investing in super
Investing can be a viable way to save for your retirement. Not only can it ensure that you are able to live comfortably once you stop working, but money you put into super is usually taxed at a lower rate than money you put into other investments.
Super is also affected by fluctuations in investment markets, so there's always the risk that you won't achieve the returns you desire.
You are unable to withdraw from your superannuation funds prior to retirement age, if you need the money down the road.
High interest savings accounts are a simple but effective investment solution. In a nutshell, you make regular contributions to an online savings account and you earn a high rate of interest on your savings balance.
Benefits and risks of investing in high interest savings accounts
High interest savings accounts are easy to establish and maintain.
They offer secure and regular investment returns. If you make a habit of regularly putting some of your income towards this type of account, your savings will grow.
Some accounts also offer a bonus introductory interest rate to help you build a savings balance even quicker.
Some banks offer interest rates on a tiered balance so higher amounts earn a lower rate of interest.
Your return is typically much lower in the long run than if you'd invested in other assets like stocks.
The interest rate can fluctuate, unlike a term deposit.
Similar to a high interest savings account, a term deposit lets you earn a high rate of interest on your savings balance. However, the difference is that the money is invested for a fixed time period, for example a year, and your interest rate is locked in until your term deposit matures.
Benefits and risks of investing in term deposits
The main benefit of a term deposit is that it guarantees steady and secure returns. While there may be opportunities to grow your wealth more substantially elsewhere, term deposits offer a safe and reliable investment solution.
If interest rates are high at any particular time, you can lock in a rate before they start to drop.
On the other hand, term deposits don't allow you to access your funds until the account matures – so if you have a cash flow problem, your money will be locked away.
The other main risk is that interest rates could rise well before your deposit matures, meaning your money won't be working as hard as it could be.
A managed fund lets you combine your money with other investors. The resulting funds are then used to buy and sell shares and other assets by an investment manager, and you periodically receive income or distributions from your investment. Another option is to buy and sell exchange-traded funds (ETFs) on a stock market like the ASX. You could also invest in an index fund ETF or managed fund. This is a type of managed fund that is constructed to track a component of the ASX.
Benefits and risks of investing in managed funds
Managed funds give you the security of having a professional manage your investments.
They also allow you to diversify your investments across a broad range of assets.
Handing over control of your investment can be a downside.
A high minimum investment may apply. Some managed funds require a minimum investment of $10,000 to $20,000 or more.
How to choose the right investment option
The right investment plan for you completely depends on your own situation and what your overall aim is.
Here are some questions to ask yourself:
Are you looking to grow your wealth substantially in the next 5–10 years?
Do you want to start steadily and securely putting away money for retirement?
Do you want to be able to set your family up financially?
How much risk are you willing to take on?
Are you happy to borrow more money to fund the investment or would you rather pay for it out of your own pocket?
How much money do you have available to invest comfortably?
Did you know?
In 2024, women saw better investment returns than men, on average, 1.7% higher. Women aged 45 to 54 stood out even more, outperforming men in the same age group by nearly 8%.
While we’ve explored some of the specific risks associated with each investment option above, there are a few more general risks you should be wary of. These include:
Taking on more debt. If you’ve just paid off your mortgage and you're thinking of taking out another loan, ask yourself if you really want to tie yourself down to another debt. The financial and emotional stress of keeping up with repayments can wear you down, so you might be better off avoiding borrowing more money.
Getting into trouble. Depending on your circumstances, you don’t want to take on too much investment risk. You’re obviously going to be much closer to retirement than you were when you first took out a mortgage, so consider the potential consequences for your finances if your new investment plans go belly-up.
Putting the house at risk. You’ve worked for years to pay off your house and make it your own, so think very, very carefully about any investment options that might put your home at risk.
Expecting a silver bullet. Remember that there are no guaranteed pathways to instant wealth no matter which option you choose. If an investment sounds too good to be true, it probably is.
Not being prepared. Don't invest more than you can afford to lose and make sure you have an emergency cash fund set up before investing in any risky assets (like anything that is not a cash savings account).
Our expert says: An alternative to repaying the loan
"Being able to pay your home loan off early is an incredible feat! But there are a couple of reasons you might consider keeping the loan around. Like, if you think you'll need money in the near future. By keeping the loan open you can draw down cash from the equity of the house. The best way to do this is by keeping the money in your offset account so that you're not paying any interest. "
If you haven't finished paying off your home loan yet, but you're close, it may be worth considering holding off.
By this point you will have a substantial amount of equity in your property. If you've made additional repayments to get to that point, you may be able to access those extra funds through the loan's redraw facility.
If you know you need a cash injection some time in the near future, using your home loan's redraw facility may work out as a cheaper option than borrowing more money.
You can also keep the money in your offset account instead. You'll keep repaying the loan but without the interest. This means you have the loan facility there to access cash when you need it. On the other hand, if you use the money to pay off the home loan, you then lose access to the money.
Pros and cons of paying off your mortgage
Pros
You have no debt and don't need to worry about monthly repayments.
You can put your money elsewhere and earn from it.
You won't be continuing to pay interest on a loan you no longer need.
Cons
You won't be able to redraw from your extra repayments if you need additional cash.
If you need another loan in the future you may no longer be in a position to borrow if your circumstances have changed.
If you have other debt, or decide to take out other debt, you'll be paying a higher interest rate than if you keep your mortgage and redraw.
Frequently asked questions about what to do when you've paid off your mortgage
You'll receive a discharge note once you've paid off your mortgage. There will then be other tasks to complete such as updating your home insurance policy and informing your accountant. You will also need to register your discharge of mortgage at the land titles office in your state.
Whether or not it's a good or bad idea to pay off your mortgage rather than keeping the loan open is down to your own situation. You might know that you'd like to take a trip soon, or renovate your home, or use your equity for another property. In this situation, keeping your loan open means you can draw down the funds without taking out another loan.
However, you might be keen to get rid of the debt and stop making those monthly repayments. That way, you can use the money for other things, like investments.
If you're unsure what the right decision is for you, it might be a good idea to speak to an accountant or financial adviser.
Sources
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To make sure you get accurate and helpful information, this guide has been reviewed by
James Millard, a member of Finder's
Editorial Review Board.
Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines.
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Another option you might want to consider is investing your money in a business. Rather than investing in shares, which involves buying a small portion of a publicly listed company, this refers to taking ownership of a business and using it to generate wealth.
