What Happens When You Pay Off Your Mortgage?

If you are one of the millions of people in Australia paying off a home loan, you are probably dreaming of the day that you finally pay off your mortgage.

Now that may seem like a bit of a fantasy at the moment given that you will potentially still be slogging away making repayments for another 10, 20, or even 30 years – or until hell freezes over – whichever comes first.

However, there are a few ways to see it paid off a whole lot sooner and be on your way to financial freedom. Yeah baby.

Just transferring a little more than the required payment each month or fortnight, can help you whittle down your loan. Even finding the equivalent of one extra repayment a year can carve years off your home loan.

Another possibility is to invest $10 in an Endeavour Foundation Ultimate Life Changer lottery. With $500,000 in cashable gold bullion as one of the three amazing prize options, you could soon find yourself with a very healthy bank account and suddenly the capacity to make a very real dent in your home loan or possibly even annihilate it entirely, Terminator-style.

Imagine the sheer joy of being able to wipe your mortgage off the face of the earth with a single payment. That’s truly satisfying, life-changing stuff right there.

So, what actually happens when you make that last payment?

On that glorious day you head down to your local branch and, as you step through the automatic doors, you hear the fanfare of trumpets and see that all of the bank staff and customers are lined up forming a guard of honour for you to run through. As you reach the counter and high five the smiling teller, balloons and glittery confetti fall from the ceiling, everyone cheers, and then the bank manager pops a bottle of chilled Dom Pérignon.

Yeah, right.

Sadly, the reality is a tad more mundane. It’s actually quite surprising how something so ‘BIG’ in most people’s lives can come to an end so unceremoniously with a couple of pieces of paper, and, most disappointingly, no fanfare.

Don’t get us wrong. Paying off your mortgage is huge in anyone’s books and definitely something worth celebrating. But now that we’ve established what’s not going to happen, let’s look at what will actually happen when you make that last payment.

Steps to pay off your mortgage

Let’s say you wake up one morning to find that $500,000 has suddenly sprung into your bank account (nudge, nudge, wink, wink) and you want to pay off your mortgage in one fell swoop.

Obviously, a phone call to your bank (or broker) is a great way to get the ball rolling. If you used a mortgage broker to establish your loan, they will be able to help you through the process of paying it out. After all, they’re still being paid a commission on your mortgage, so you may as well make use of their services.

But if you’re interested in the process of officially owning your own home, we’ve outlined the basic steps involved in making it a reality:

1. Check the terms of your mortgage

First of all, make sure you check the terms of your current mortgage. For example, if your loan is fixed, you could be required to pay thousands or even tens of thousands of dollars in break fees to pay it out early. Sometimes it’s not always in your best interest to pay the mortgage out straight away so make sure you know if any fees apply and exactly what you will be up for.

2. Complete a Discharge Authority

You can ask for this form from your lender or via your broker. It’s a very straightforward form which you simply need to fill out and return to your lender. In most cases it can simply be emailed back to the address supplied.

3. Wait for your bank to do the paperwork

Once you’ve submitted your Discharge Authority, you need to wait for the bank to process things at their end. This can typically take up to two weeks.

4. Receive the Discharge of Mortgage

When all is said and done, the bank will issue you with a Discharge of Mortgage. This is an important document that proves that your home loan is paid out and the bank no longer holds a mortgage on your property.

5. Make the final payment

If your balance isn’t already zero, you will need to find out the final payout figure from your bank or lender. This amount will include any interest or fees that need to be paid to finalise the mortgage. Then simply arrange for these funds to be transferred to the lender.

6. Register a release of mortgage

In Queensland, the Discharge of Mortgage you receive from the bank must then be registered at the Titles Registry. You will need to complete a ‘Form 3 – Release’ and provide any other required information or documentation. Queensland Government’s Business Queensland website offers a guide for registering a release of mortgage.

This is a really important step and can sometimes be overlooked. Some people think that when they make the last payment it’s all done and dusted – there’s nothing more to be done. But if you don’t take the step of registering the release, when you go to sell your house, it will still show a registered mortgage on your property. You will then need to try to complete this process, but if years or even decades have passed, the process can be a lot more difficult. The bank may have difficulty locating your paperwork or worse still, your lender may not even exist anymore which creates a whole series of headaches. These problems can generally be overcome by a good solicitor, but it won’t be cheap.

Once your release of mortgage is registered, your property title will show that there is no mortgage registered on your property and it’s officially yours, all yours.

It’s worth noting that as of late 2019, in line with the move toward electronic transactions and record-keeping, Queensland no longer issues a paper Certificate of Title. So, if you have always dreamed of having that paper title in your hands or handing one to your kids like in the ads, we’re sorry to say that’s not going to happen. But rest assured, all of the other advantages of owning your home outright are very real indeed.

7. Update your home insurance

You might be able to remember that when you insured your home you needed to let your insurance company know if you had a mortgage on your property and who it was with. Now’s the time to update those details with your insurer so that they can remove the lender from your Certificate of Currency.

What happens next?

Ah, now this is the bit that is completely up to you. Depending on the size of your mortgage, there’s a good chance you’ll have a bit of change left over out of $500k. You could use it to see the world, take on those renovations you’ve always wanted to do (especially now that the house is all yours), or you might decide to be sensible and invest it in your future.

Whatever you decide, not having a mortgage hanging over your head has to change your life, and in turn your family’s, in one way or another. Just having that extra cash in your pocket each month would make a huge difference and over the course of a year, would add up to a tidy little nest egg. For some it might mean being able to cut back on work hours for a better work/life balance or throwing in that 9 to 5 job to start a business.

And for others, it would simply take the pressure off and mean that worrying about bills is a thing of the past. That alone is worth its weight in gold. $500,000 to be precise.

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