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What happens when you pay off your mortgage?

Find out what to do after you've paid your mortgage in full, and where to invest your money next.

Paying off your mortgage is a great achievement. But if you can pay it off, does that mean you should?

And if you do decide to pay off and discharge your loan, what do you do with the extra cash then?

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.
  • Closing out your mortgage can impact your credit score as you're no longer proving you can meet regular repayments.
  • 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.

Accessing cash through redraw

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 and 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.

While it might sound counterintuitive to keep your mortgage open, it can be a helpful move for some.

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.

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.

Read our step-by-step guide to discharging your mortgage

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:

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?

Traps to avoid when investing

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).
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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