What happens when I've paid off my mortgage?


What happens when I've paid off my mortgage?

Mortgage-free - it’s a status many homeowners may be only too happy to achieve. Free from mortgage payments, you have the joy of knowing you own your property outright.

But what happens when your mortgage reaches its end? Well, it all depends on whether you have a repayment mortgage or an interest-only mortgage. Read our latest blog to learn more.

Repayment mortgage

Your mortgage will usually end when the term you agreed at the start – often 25 years – comes to an end. The exceptions to this would be:

- if you have made overpayments on your mortgage

- if you’ve got behind with your payments and not caught up

- if you’ve extended the term of your mortgage

If you made the decision to overpay on your mortgage, you will have reduced the overall term you paid it for and get mortgage-free sooner. So, even though you may have chosen a term of 25 years when you took out the mortgage, you might pay it off in 18 years, for example. By overpaying, you will also save money on interest.

Simply put, your repayment mortgage ends when you have paid back 100 per cent of the debt.

Once your mortgage ends, you will be the proud owner of all the equity in your home and your mortgage lender will remove its charge against your property – in effect saying that it has no further interest in it. You can request that your mortgage provider returns your Title Deeds – there may be a fee for this – but you don’t need to worry unduly about keeping them in a safe place. If you bought the property after 1990, it’s likely your home is registered with the Land Registry. This means that if you were ever required to prove you own the property, you could request a copy of the deeds from the Land Registry if you couldn’t find the original.

If your home is one of the few that isn’t registered – and you can check whether yours is here – you will need to take extra care of your Title Deeds and make sure you keep them in a safe, fireproof container. You will need your Title Deeds if you register the property.

And that’s it – there’s nothing else you need to worry about when your repayment mortgage is paid off. Just remember to make sure you have an active buildings and contents insurance policy in place.

If you’ve come to the end of your interest-only mortgage, however, there’s more to consider.

Interest-only mortgage

Following the Mortgage Market Review of 2014, the rules surrounding interest-only mortgages were tightened, and they’re not as readily available now. However, whenever you took out your interest-only mortgage, once you reach the end of the term the debt will still be outstanding.

As the name suggests, on an interest-only mortgage you only pay the interest on the loan, rather than paying back the loan itself. This can make the monthly payments lower than they would be on a repayment mortgage, but you will still be left with a large sum that you need to pay off once the mortgage comes to an end.

There is a rare exception; if you are on a lifetime mortgage. This will stay in place and means you can remain in your home until the last of the mortgage policyholders dies.

If you have a standard interest-only mortgage, your lender will have asked you to provide a repayment plan detailing how you will pay back the money you owe once your mortgage ends. However, it’s up to you – not the lender – to stay on track with this.

Options include putting money into a savings account, saving in a stocks and shares ISA, purchasing shares or investment bonds and using the money released from a pension pot. You can use this calculator to work out how much you will need to save each month to have enough to pay off your loan at the end of your mortgage.

It may be possible for you to switch to a repayment mortgage, or partial repayment mortgage, before your interest-only mortgage term is up. You should speak to your lender about this.

If you don’t have the cash you need to pay back the capital value of your home once your interest-only mortgage ends, you may be able to remortgage – but this can be difficult. You should let your mortgage provider know as soon as you think you’ll have trouble paying back the loan – even if it’s some time before your mortgage actually ends – so that they can work with you to find an affordable solution.

If you can’t do this, your only remaining option may be to sell your house and use the proceeds to repay the outstanding mortgage balance. If you’ve owned the property for 25 years or more there’s a very good chance that it will have gone up substantially in value and you should have a good chunk leftover after you’ve done this to put towards a new home.

We hope this blog has answered any questions you might have had about what happens when your mortgage finishes. Keep checking back for more advice and news about mortgages.