Your Mortgage Is Finally Paid Off. Now What?

Owning a home free and clear is a dream for many Americans.

And for over 40% of them, it’s already a reality. 

If you’re part of this group of people who have paid off their mortgage, congratulations.

Now that you own your home outright, it’s time to reap the benefits and focus on other goals.

“Life changes when you don’t owe money on your home. You will find yourself with less monthly pressure. Trips come easier. Purchases feel more intentional. You may even sleep better at night,” says Joshua Mangoubi, founder and chief investment officer at Considerate Capital Wealth Management in Chicago.

What to do after you’ve paid off your mortgage

Once you no longer have monthly house payments, the most important thing you can do is keep lifestyle creep in check. 

The risk of being mortgage-free is falling back into debt simply because it’s easy. Paying your home off takes discipline. Whatever you do, don’t undo your financial win by replacing it with something new. 

“There’s nothing wrong with getting a boat or starting that vacation fund but understand that once you take on a new payment you’ve sacrificed some of the freedom you just created,” explains Mangoubi.

If you don’t have a concrete financial plan in place, your money may take on a life of its own and in time, be gone with the wind. 

“Sit down and make a plan, based on your priorities and lifestyle goals” says Michael McAuliffe, CEO and president at Family Credit Management in Chicago.

McAuliffe recommends you stash three to six months of expenses into a high-yield savings account and tackle any other debt you might have. 

From there, leverage any tax-advantaged retirement accounts, such as 401(k)s and IRAs. If possible, max those out. Then, create a bank account for home improvements and repairs. 

“We suggest you set aside 1 to 2% of your home's value per year or more if you know major expenses are on the horizon,” explains McAuliffe.

Don’t forget to budget for property taxes and home insurance so you don’t get hit with surprise bills or late payment fees.

“Once your mortgage is gone, you're still completely responsible for these expenses. They don’t go away when you pay off your loan. In fact, they can be quite substantial,” says Mangoubi.

Lastly, think about estate planning—specifically with your home. 

“You may want to consider putting your house into a land trust so your beneficiaries don’t have to worry about going through the long, expensive probate process,” says McAuliffe.

How to maximize the benefits of mortgage-free living

Once your mortgage is paid off and you’re in a comfortable spot financially, make yourself a priority. 

After all, you’ve worked hard, and now is the time to truly enjoy life.

“Think about what’s important to you: travel, golf, gardening? As they say, the world is now your oyster. Without a mortgage hanging over your head, it's time to take some guilt-free pleasures for yourself,” says McAuliffe.

Mangoubi says that you should enjoy life but don’t have to do anything drastic. 

“You removed a major monthly financial pressure from your life and your savings are there to provide you security and the freedom to enjoy your time. Time is the finite resource that is dwindling. That’s the investment worth focusing on,” explains Mangoubi.

Make the most out of your precious time. Depending on your situation, this might mean working less, retiring earlier than planned, outsourcing household chores like cleaning and gardening, exercising more, and spending money on experiences rather than things.