What happens after you pay off your mortgage

With the average Australian home loan stretching to $735,000 over 30 years, paying off a mortgage is no small feat. But before cutting ties with your lender altogether, experts say it's worth considering whether discharging the loan is the right move.

In short

• Paying off your mortgage and discharging it are two different things.
• Keeping the loan account open may preserve access to redraw facilities and other borrowing options.
• Discharging a mortgage can cost several hundred dollars in fees.
• The right choice depends on your future borrowing needs and ongoing loan costs.

The question is becoming increasingly relevant as more Australians approach retirement with mortgage debt still attached to their home.

Research based on ABS housing data found that 54% of homeowners aged 55-64 still had a mortgage in 2019-20, up from 23% in 2002-03.

Among Australians aged 65 and over, the share carrying mortgage debt rose from 4% to 13%.

"My experience, having paid off a mortgage twice, is it's great, but it feels like you're on a plane coming into land," says Serina Bird, author of How to Pay Your Mortgage Off in 10 Years.

"You touch down, feel that first bump and go: 'Wow, we've hit the ground, we've paid off the mortgage, it's all fine.' But then there's a few more bumps."

For Bird, those post-mortgage bumps are the major expenses that can suddenly arise later in life.

Is anyone actually paying off their mortgage completely?

Yes, but it's becoming less common as more Australians carry mortgage debt into retirement.

Vince Scully, co-founder and CEO of financial advice firm Life Sherpa, says it's a trend he's seeing among clients.

"I don't see that many people doing it," he says. "More people heading into retirement have guaranteed loans for their kids to get them into a house, and the banks take their house as security for that."

Even so, plenty of Australians are reaching the point where they've repaid their home loan and are deciding whether to formally discharge the mortgage or keep the facility open.

For these borrowers, reaching a zero loan balance raises a new question: should they formally discharge the mortgage, or keep the facility open for future flexibility?

And for some borrowers, financial advisers say discharging the mortgage may not be the best option.

"Generally, we would encourage people to not pay it off, particularly if they have a redraw or offset account and particularly if they're coming towards retirement and having to access credit," says Scully.

Should you discharge your mortgage after paying it off?

There is no one-size-fits-all answer. Whether you should discharge your mortgage after paying it off depends on how likely you are to need credit in the future, the costs of keeping the loan open and how much value you place on being completely debt-free.

Financial advisers say one of the biggest advantages is maintaining easy access to credit through redraw facilities or other lending arrangements.

For example, a homeowner who has spent two decades making extra repayments could have tens or even hundreds of thousands of dollars available through a redraw facility. Keeping the mortgage facility open could allow them to access those funds later for renovations, helping adult children into the property market or funding an investment purchase.

But Scully also acknowledges the benefit of hoisting off a mental load borrowers may have been carrying for decades.

"There's that feel-good factor, knowing that the bank's not on the top anymore and we should never underestimate the power of those sorts of psychological feelings."

Why some Australians keep their mortgage open

Paying off and discharging your mortgage can mean losing access to a relatively cheap and easy way to borrow money.

This is because your loan might have come with a redraw facility, a feature which gives you access to any repayments you made above the minimum required by your lender.

"You can draw that money out, usually at no charge, depending on the lender, to use for whatever purpose you like," explains Edwards.

Financial advisers say such facilities can give mortgage holders access to sizeable sums of money.

"If you think of somebody at 40 years old buying a family home and making additional payments along the way, at 55 or 60, they could have built up hundreds of thousands of dollars available to recall," explains Scully from Life Sherpa.

"You can do what you'd like with those funds, in terms of accessing or gifting them, if you want to gift them for helping kids out, or use them to purchase an investment property," adds Edwards.

What does it cost to keep a mortgage open?

Despite these benefits, Edwards notes that a mortgage with a low amount owing may still come with ongoing costs and obligations.

"Typically there's either account-keeping fees or, if your home loan is in a package with an offset account and a credit card attached, there'll be a package fee," she says.

"You also have to check with the lender whether, if there is zero balance showing, does that trigger a closure of the facility and is there a minimum balance that needs to be retained?"

How much does it cost to discharge a mortgage?

Savings expert Serina Bird warns going through the steps above will cost time and money.

"[Your bank] won't go: 'Congratulations, you paid off your mortgage. We're so happy for you, and here's the discharge form and we'll make it really easy!' You really have to chase them to get the discharge form and pay for it."

Financial advisers say bank fees to process a discharge and land titles office fees for searching and making changes to a Certificate of Title can add up to several hundred dollars.

Frequently asked questions

Does a mortgage automatically close when it's paid off?
No. In many cases you'll need to request a mortgage discharge from your lender.

Can you keep a mortgage open after paying it off?
Often yes, although your lender may impose fees or minimum balance requirements.

How much does it cost to discharge a mortgage?
Costs vary by lender and state or territory, but can total several hundred dollars.

What to do after you've paid off and discharged your mortgage

Banks urge anyone discharging their mortgage to consider what implications this might have for their insurance, estate planning and will.

Bird says it's also important to recalibrate your financial plans once the burden of the loan has been lifted.

"Often paying off a mortgage is a really big goal for people, it's something that really motivates them with their finances," she notes.

"So once you've achieved that goal, it's important to think about what comes next and what your next financial goal will be."

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