From The Boomer & Echo Mailbag: My Mortgage Is Almost Paid Off. Now What?
Q. I will be making my final mortgage payment in a couple of months. What happens next?
Congratulations for achieving this big financial milestone. You’re about to own your home free and clear of any debt and, with the increase in your cash flow, you will improve your financial condition. Once that final mortgage payment is made you may think you’re done and ready to enjoy a mortgage-free existence. There are a few things you need to do first.
Discharge the mortgage
When your mortgage is paid in full, the lender will provide you with a Discharge of Mortgage. This is a legal document that releases the collateral hold on your home. It proves you have fulfilled the terms of the loan and you no longer owe the lender any money.
You will have to pay the mortgage company a discharge fee. Each lender sets its own fee rates and every province is different. Generally, you will pay between $200 – $350, but the fees can range from low of $5 (RBC-AB) to a high of $395 (Home Trust in all provinces except AB, BC, MB).
Registering the discharge
To be completely free of your mortgage you need to clear the title of your house by having the mortgage removed.
At one time banks would register the mortgage discharge for you, but now they often make it the homeowner’s responsibility. It’s up to you to take the discharge to your local Land Titles Office for registration. There will be an additional fee for this, usually about $70.
Be sure to obtain a new Certificate of Title showing the discharge.
Homeowner’s insurance
Contact your homeowner insurance carrier to have the lender removed from the policy. Ask if they provide a discounted premium for being mortgage-free. Not all insurance companies give a discount, but you may be able to lower your payment by 10% – 15%.
What to do with the extra money?
Being mortgage-free is definitely a cause for celebration, but it doesn’t mean you can increase your lifestyle.
You want to keep building your net worth by putting this extra cash flow into appreciating assets. You may now be able to fully fund your RRSPs, TFSAs and RESPs.
Don’t just focus on your long-term security. Take another look at your family’s goals and prioritize them again. Especially if you have been directing all available cash to pay your mortgage quickly, you may find that your short and medium term goals have been neglected. There’s nothing wrong with taking a nice vacation or finally replacing that old hand-me-down sofa.
Excellent topic and details to go with it. This is definitely a financial crossroad where you can harness that cashflow straight into investments if you’re willing to keep the same lifestyle. Without any thought to it, lifestyle can easily dispose of the new found cashflow. I know of situations where the entire mortgage payment amount becomes a regular investment amount and others where lifestyle increases by a portion of the payment that was going to the bank in interest. Either way, give it thought and reward yourself for a job well done. The cashflow opportunity is a game changer.