Paying off your mortgage is one of the most satisfying milestones in life. The financial freedom and sense of accomplishment it gives you is tough to match.
Let’s take a look at how to make your final mortgage payment, what you need to do after paying off your mortgage, and the pros and cons of paying it off early.
Access the latest mortgage advice and guidance
Making your final mortgage payment
Before making your final mortgage payment, you need to request a final redemption quote from your mortgage lender. This can be done either online or over the phone. Your quote will outline the amount of capital and interest that need to be paid in order to completely clear your debt and own your home. It will also provide you with the date on which your mortgage term ends.
You may be in a position to pay your mortgage off early. Usually, this will result in you having to pay an early redemption charge. This will be outlined in your final redemption quote, as well as any extra costs such as exit fees, which cover the lender’s admin expenses for tasks including releasing the title deeds and closing your account.
Related: Most frequently asked questions about 95% mortgages
What documents will you receive after paying off your mortgage?
The lender will send you a closing letter and a discharge note to confirm you have paid off your mortgage. You will also receive some paperwork that will need completing. After this is complete, your mortgage lender will remove the charge on your property. Make sure you double-check this by contacting HM Land Registry.
For a fee of just £3, you can acquire a copy of your title deeds. Either your lender or your solicitor will have held the deeds throughout the duration of your mortgage.
What you need to do after paying off your mortgage
Contact your insurance company
You need to contact all your insurance providers to let them know you have paid off your mortgage. You may need to make arrangements with the insurance company to pay the premium directly if you were paying for your home insurance through your mortgage lender.
Cancel automatic payments
Make sure you cancel any automated payments or direct debits that were used to pay your monthly mortgage payments. This will allow you to avoid the stress of trying to get back money you didn’t mean to send.
Budget for new taxes
As a full property owner, you will have different tax obligations, so it’s important to budget for this accordingly. For example, if you decide to sell your home, you will have to pay Capital Gains Tax on any profit you make above the threshold at the time.
Benefits of paying off your mortgage early
Interest savings – By paying off your mortgage early, you can save a significant amount of money on interest payments.
Financial freedom – Being mortgage-free provides a sense of financial security and freedom as you no longer have the burden of a monthly mortgage payment.
Maximised equity – Maximising the equity you have in the property could put you in a strong financial position in the future.
Related: The costs of selling your home
Drawbacks to paying off your mortgage early
Early repayment charges – Most mortgage lenders impose penalties for early repayment, which can mitigate the financial benefits of paying off your mortgage early.
Reduced liquidity – Tying up a significant portion of your wealth in home equity may reduce your liquidity, making it more challenging to access funds in case of emergencies or other financial needs.
Loss of tax benefits – The money you spend paying off your mortgage early could have been put into your savings or invested elsewhere.
Should I pay off my mortgage early?
Ultimately, there is no right or wrong answer to whether or not you should pay off your mortgage early. It depends on a range of factors and considerations based on your personal circumstances and aspirations.
We can put you in contact with an experienced financial advisor who will help you carefully weigh up the pros and cons based on your specific circumstances to determine your best course of action.
For more advice and guidance, contact your local Martin & Co branch today.
