What to do after paying off the mortgage
After years of nudging it down, you’ve finally flattened the mortgage for good and paid it off. So now what?
After celebrating their financial freedom, homeowners develop a new set of money goals, says Scott Parry, chief executive of Crown Money Management.
Parry says it’s common for people who have paid off their homes to invest in property again.
“Whenever a homeowner does pay off their mortgage, their next step is usually to have a holiday and then from there they will start down the wealth creation phase, which is primarily growing their asset base predominately though property,” he says.
“They feel very comfortable with property as opposed to shares because they can see it, they can touch it and because the banks allow them to leverage into it.
“Property investment is definitely the next strategy which a lot of people undertake as soon as they have paid off their home.”
With historically low interest rates, many opt to invest in property they can let to tenants while others make the lifestyle choice of buying a holiday home.
Sydneysider Natasha David paid off her one-bedroom apartment in Surry Hills last year. She purchased the property for $317,000 and employed a disciplined strategy to pay it off.
“There are no fancy secrets, it just takes diligence and discipline to pay off mortgages,” she says.
“What I mean by diligence is that you need to track your expenses and keep them below your income – it really is as simple as that.”
Simple measures such as taking lunch to work, bargaining on health and car insurance and avoiding using her credit cards helped David pay off her mortgage. It also allowed her to purchase a property in Corrimal, near Wollongong, and invest in a car space in Sydney. She now generates an income from these two investments.
“While I have a very good income now, and it seems easier to pay extra into my mortgage as well as putting in the income from my investment properties now, at the start it was literally about watching the dollars and cents every month to be able to pay it down sooner,” David says.
One in four Australians own their homes outright, while 41 % are paying off a mortgage and 24 % are renting, Citibank’s annual wealth survey found in 2015.
Those who are paying off the mortgage are likely to put it on top of their priorities. Research by MLC this year found almost 80% put outright home ownership as their most important priority.
