You’ve paid off your mortgage, so what can you do next? Firstly, you should congratulate yourself, as paying off a mortgage is a big achievement. This will free up your money, giving you more financial freedom. How you then choose to use this extra cash will depend on your aims and aspirations for your current lifestyle and future retirement.
Let’s explore some next steps in our checklist below:
- Complete any mortgage admin
Before we look at money matters, make sure you have completed all your mortgage admin. If you bought your house before 1990, you might need to register your property on the Land Registry website. This measure will ensure that your home is protected against fraud and squatters. There is a fee if you do need to register. Get a copy of your property deeds, too – if you don’t have this, check with your solicitor. - Clear any other debts
If you want to be truly financially free, you should prioritise clearing any remaining debts. Review your credit cards or repay an outstanding loan so you can start using your extra cash for savings. Some flexible-access savings accounts enable you to save, earn interest, and even establish an emergency fund. - Create a savings pot
Increasing your existing savings pot is a helpful way to make use of your extra money. Everyone has a personal allowance when it comes to savings and interest. Basic rate taxpayers can save up to £1,000 of interest and £500 for higher rate taxpayers (£0 for additional rate taxpayers). Consider saving into a tax-free ISA (independent savings account) as this doesn’t count towards this allowance. - Start an emergency fund
Also known as a ‘rainy day fund’, it’s essential to have a savings pot you can easily access if you need money for unexpected circumstances. An emergency fund can help you pay for urgent repairs. If you’re employed, this can act as a cash reserve to cover household bills if you were made redundant. If you own a business, this additional cash could act as a financial buffer in times of economic uncertainty. - Check your pension forecast
One way to use your freed-up money from your mortgage repayments is to increase your pension contributions. Look at your last annual statement for your private pension to see if you will have enough income when you retire. To be eligible for your state pension, you’ll need 35 years of contributions, so make sure you don’t have a shortfall. Check here: https://www.gov.uk/check-state-pension - Consider early retirement
For some people, clearing the mortgage can give them the opportunity to reduce their working hours or retire early. If you’re 55 years or over (until 2028), you can access your private pension (first 25% can be taken tax free). It’s essential to make sure you only draw what’s needed from your pension. This income needs to support you throughout your retirement. Many people choose semi-retirement for this reason. - Review your estate
After you have paid off your mortgage, this can be an excellent time to review your estate in terms of inheritance tax (IHT). There are a few ways to reduce your family’s future tax liabilities, including gifting. Different gift allowances apply, and the 7-year rule will apply. For more information, read our blog, Giving tax-efficient gifts at Christmas. - Build an investment portfolio
Some people dabble with investments, but to generate a good return, you need an efficient strategy and a diverse portfolio. There are many ways to invest the money you no longer need for your mortgage, which will depend on your level of risk. You might prefer an ethical ESG investing route, focusing on environmental, social and governance principles. You could also consider saving into a stocks and shares ISA. - Enjoy your money
Last but not least, once you have secured your finances, it’s time to enjoy your hard-earned wealth! After all, it’s your money… Whether you treat yourself to a luxury holiday or a home upgrade, make sure you have carefully planned for any large spending. A financial plan will help you organise your money to help it last longer.
Financial Planners, Nottingham and Lincoln
Our qualified and experienced financial planners can help you make the most of your freed up funds. We aim to ensure your money can be used in a tax efficient way to support your aims and aspirations. We can advise you on pensions, savings, investments and protection.
Our financial planning team have offices in Nottingham and Lincoln. First, we will have a quick call to understand your requirements. If we feel we can help you, we will then arrange a free initial consultation, where we will learn more about your objectives. Read more about our process…
If you’re due to pay off your mortgage or you have already done so and need advice, get in touch with our financial planners for advice.
Sources:
https://www.thetimes.co.uk/money-mentor/mortgage-property/mortgages/paid-off-mortgage
https://www.gov.uk/search-property-information-land-registry
https://www.gov.uk/apply-tax-free-interest-on-savings
https://www.gov.uk/check-state-pension
