What Happens When You Pay Off Your Mortgage? (2023)

what happens once you pay off your mortgage

When you first take out a mortgage most people can’t wait for the day they make that final payment. However, once that day finally does arrive, what actually happens?

In this post, I’ll take you through what happens when you pay off your mortgage so you’re aware of the steps you have to take to complete the process as well as everything in between. The process can differ slightly depending on your location and lender, although should all follow a similar process.

Documents You Should Receive

When you pay off your mortgage, you should receive a number of documents from your lender explaining that your mortgage has been paid in full. These are often referred to as mortgage release or mortgage satisfaction paperwork and highlight the lender no longer has a lien (claim) on your home.

You’ll likely receive two documents:

  1. Statement highlighting the loan’s balance has been paid in full
  2. Cancelled promissory note (a form you signed when you took out the mortgage effectively saying you promise to pay back the money)

Property Deed Transferring Into Your Name

Once your mortgage has been paid, your lender should file documents with the government to release the home’s deeds to you and transfer the ownership to you. It’s worth asking the lender if they’re going to do this process as sometimes you have to initiate this process.

Transferring the deeds into your name can take a few weeks or even a few months. If you do have to do this yourself, you can contact your local records office and they’ll explain the process.

In the UK for example, when you take out a mortgage on a property the lender usually registers a charge over the title. Once you’ve paid off your mortgage, your lender should submit an electronic notification of discharge (END) to the Land Registry which will remove that charge.

This will then mean you’re the registered owner of the property and the lender will also send you the property’s original title deed.

Credit Report Changes

Once you’ve paid off your mortgage, your credit report should be updated in the following month or two showing that your mortgage has been satisfied. As you’ve now paid off a loan in full and are no longer making regular payments each month, your credit score could actually reduce slightly.

I know, paying off a loan successfully and your credit score goes down, I agree, very odd. It’s because you no longer have an active loan that you’re making regular successful payments against. The overall impact should be minimal and if you’ve got other financial products such as personal loans, car finance, or credit cards the impact should be even smaller.

Does Paying Off Your Mortgage Affect Home Insurance?

Unfortunately paying off your mortgage does not affect your home insurance. All that changes is the owner of the property moving from the lender to be in your name all the risks of homeownership stay the same, so you still require the same home insurance.

Allocate the Extra Money in Your Monthly Budget

The amazing part about paying off your mortgage is that you now don’t have to pay that often quite large expense each month. This should leave you with quite a decent bit of extra money each month. Here are a few things you could do with that extra money.

Pay Down Other Debt

If you have any other types of debt including personal loans, car finance, or credit card debt, allocating this additional disposable income to pay off those loans can help save you a lot of money in interest payments, and you won’t even feel the difference. Just make sure to check there aren’t any penalties for early repayment.

Increase Your Savings For Retirement

Increasing how much you put aside each month can help you increase your standard of living throughout retirement. With the cost of living rising painfully quickly each year, the more you can put aside the better and if you can do so without changing your standard of living now, that’s perfect.

This post I’ve written on how much you need to save for retirement may be a useful read.

Build Up An Emergency Fund

Many financial experts recommend having an emergency fund. This is to ensure you have money available to protect yourself against unexpected surprises.

This can be anything such as a broken washing machine, your car suddenly falling apart, or a family emergency, and having an emergency fund in place can give you peace of mind you’re covered.

Other Savings Goals

Having extra disposable income each month can allow you to save towards other life goals. Have you always wanted to go on a dream holiday? Buy an investment property? Well now could be the time to do it.

Remortgage the Property – Equity Release

Once you’ve finally finished paying your mortgage the last thing some people may want to do is take out another mortgage. However, taking out another mortgage in the form of an equity release can allow you to have access to a lot of cash without having to sell or move elsewhere.

Doing an equity release on your property can come with a lot of risks, especially if you are retired or hoping to retire in the near future. If you are thinking about going down this path, make sure to talk to a mortgage advisor or financial advisor so they can give you tailor advice so you can make sure it’s right for you.

Additional Questions

When you have paid off your mortgage and are going through the final stages if you do have any questions regarding the process you will be able to ask your solicitor for help and guidance.

Summary

Overall, paying off your mortgage is definitely an exciting milestone. Not only are you now the full owner of your property, but you also no longer have to pay your mortgage each month allowing you to increase your savings or enjoy spending the money elsewhere.

Remember you don’t have to wait until you’re about to make that final mortgage payment to start to plan. Knowing exactly what steps your lender is going to do ahead of time can make sure it goes smoothly and you’ll already know what you’re going to do with the extra cash each month.