If you’ve paid off your home loan (or even fully offset your home loan), congratulations! Every homeowner who takes out a mortgage against their home dreams of the day that the debt is repaid. That time has arrived!
Here are some steps you might consider taking next:
Celebrate and Acknowledge Your Achievement
Firstly, take a moment to celebrate this significant financial milestone. Paying off a home loan is a major accomplishment, and this deserves some recognition.
Do I keep my loan open, or do I discharge my mortgage?
If you have an offset account and not incurring any interest on your loan, you may decide to keep your home loan in place with the regular (principal only) repayments in place. Keeping the loan in place allows you the flexibility to access debt facilities (if needed in future) at a relatively low interest rate, or the option to keep your current home as a geared investment property if you decide to upgrade your family home. Should you seek to completely clear your loan, then make sure you obtain a release of mortgage: Contact your lender to ensure that the mortgage is officially discharged and that you receive the necessary documentation confirming the release of the mortgage on your property title.
Build an Emergency Fund
Ensure you have an emergency fund in place to cover unexpected expenses for a rainy day. Typically, we would suggest you aim to save at least three to six months’ worth of living expenses in a high interest-bearing bank account linked to an everyday account, so funds are easily accessible if needed.
Upgrade Your Home or Lifestyle
If there are any home improvements or renovations you’ve been putting off, now might be the time to undertake them. Alternatively, consider using the extra cash flow to enhance your lifestyle or pursue hobbies and interests. Or take the opportunity to work part time given your expenditure is lower to improve the quality of your life.
Consider Other Financial Goals
Evaluate your financial goals and aspirations as not having the outgoing expense of a home loan opens up a significant range of lifestyle opportunities you may have previously dreamt about. Whether it’s retiring early/financial freedom, having a sabbatical from work, saving for your children’s education, taking a dream vacation, or purchasing an investment property, allocate funds accordingly from your surplus cashflow.
Invest for the Future
With the extra funds freed up from no longer having home loan payments, consider investing for your future and building a passive income. Whose name should the investments be in (what are you earning and what is your marginal tax rate?) and do you need to consider other tax entities like family trusts and companies if you and your spouse/family are all high-income earners?
Consider a range of various investment options such as shares, managed funds, bonds, or real estate investment trusts (REITs) which give you the opportunity to build a diversified investment portfolio over time that is liquid (could be sold if funds are needed) and you can dollar cost average the investments (drip feed into an investment portfolio each month) which should smooth out short term market volatility.
Boost Superannuation Savings
If you are still working and earning an income, increasing contributions to your superannuation (super) allows you to bolster your retirement savings in a tax effective manner. Contributions could either be made under salary sacrifice arrangements (if employed in some capacity) or a personal deductible contribution (but don’t forget to complete the paperwork to make a claim at tax time).
Superannuation is broadly taxed at only 15% so offers great wealth outcomes for most, however access to the money is limited so additional contributions need to be considered in light of your age, intended retirement age (access to super is easier from age 60), and other financial objectives.
Review Insurance Coverage
Ensure you have appropriate insurance coverage for your home, contents, health, life, disability, and income protection. Now that you no longer have a home loan, it may mean lower coverage could be appropriate for life, disability, and income protection insurance.
At Boutique Advisers Private Wealth, we work with our clients to understand their financial Goals, Purpose, and Legacy needs, then options around their lifestyle goals over the short, medium and longer term. Through our Five Pillars of Advice journey, we help our clients make Confident Life Decisions about their Wealth, particularly in light of key lifestyle changes like the repayment of a home loan.
Contact our team today to discuss your financial future and how we can help you establish your own Five Pillars Journey.
Justin Porrins works with medical specialists, professionals in the mining/oil & gas industry and small business owners to empower them with the right information, guidance, and direction to make confident life decisions and achieve their ultimate goals. He builds close relationships with his clients to understand their needs and aspirations very well, then applies collective expertise to develop and implement personalised strategies and solutions, ensuring optimal financial outcomes and wellbeing.