What Happens When You Pay Off Your Mortgage? (2024)

Around a third (32.8%) of households across England and Wales own the property they live in outright, without the constraints of a mortgage, according to the latest records from the Office for National Statistics.

Paying off your mortgage in full can bring with it a great sense of satisfaction, not to mention extra cash each month once the debt is cleared.

But there will be a few loose ends and administrative tasks to tie up after you’ve made your final home loan payment. Separately, you might also want to understand more about what it means for any potential borrowing in the future.

Our guide explains what happens when you come to pay off your mortgage, including any insurance and tax implications.

Making your final mortgage payment

Before you can make your last mortgage payment, you’ll need to request a final redemption amount from your lender. You can usually do this online from your mortgage account, or over the phone. If you need to call, have your mortgage account number to hand. You can find this on any mortgage statement.

Your final mortgage redemption quote will set out exactly how much capital and interest must be paid to clear the debt in full and own your home outright. It will also give a date for the end of the mortgage term. This is the final date by which you have agreed to repay the debt.

If you’re part-way through a mortgage deal, on a fixed rate loan for example, and you’re looking to pay off your mortgage in full, there will almost certainly be early redemption charges (ERCs) – these will be set out in your redemption quote.

But there are likely to be other fees attached to your final mortgage payment, too – often referred to as exit fees. This is to cover admin costs for the lender, such as releasing the deeds (the legal document which shows ownership of the property) and closing down the account. Exit fees are typically around £100.

What documents can I expect when paying off my mortgage?

While the exact documents will depend on your lender, you’re likely to receive the following:

• Final or closing mortgage statement: sets out what you owe to repay the mortgage in full, closing down the account
• Letter confirming the mortgage account is closed: this may be emailed or sent in the post. It can be useful to keep for your personal records
• Copy of property title deeds and discharge note: the title deeds show ownership of the property which is recorded with HM Land Registry. The Land Registry is the centralised database for all property ownership in England and Wales. Once you’ve paid off your mortgage, the lender will remove its charge over the property and might send you a copy of the deeds and a discharge note.

It is no longer so important to have the physical deeds (the paperwork which shows ownership) of your property, as all the information is held digitally with the Land Registry. But holding a physical copy, as well as the lender’s discharge note, can be useful for your records.

Your lender will usually inform the Land Registry of the removal of its charge over your property, transferring the deeds solely over to you. They may send you a cancellation of charges form to complete.

There may be other paperwork to fill out for the Land Registry too, and you’ll have to show proof of identity. But there is no fee for the discharge of the lender from the title deeds.

You can ask a solicitor to deal with the forms on your behalf, ensuring they are legally watertight, but there will be an associated charge for this service.

For a fee of £3, you can check the mortgage lender’s charge has been removed from the register yourself by contacting the Land Registry.

What are the steps to paying off the mortgage?

Here’s a quick summary of what’s involved in making your final mortgage payment:

1. Request a final redemption quote from your mortgage lender
2. Make the final payment based on this quote, following any special instructions such as paying via bank transfer. Your redemption figure might only be valid up to a specific date. If you miss the deadline you may need to request a revised quote
3. Receive the documents verifying your full loan repayment
4. Make sure the information is lodged with HM Land Registry (typically your lender will do this for you but it’s worthwhile checking)
5. You are now registered as the sole owner/s of the property and the mortgage lender’s charge is removed.

Will paying off my mortgage boost my credit score?

Your credit score is unlikely to change much after you pay off your mortgage. Your payment history and the amount owed have already been factored into your credit score for several years.

However, if you’re paying off a large lump sum (maybe you got an inheritance or work bonus), the effect on your credit score may be more noticeable.

The amount of debt you owe, as shown on your credit report, will be reduced and this measure is a significant component of your credit score. In this scenario you may see a significant bump up in your credit score within a few months. That said, if you already have excellent credit and a top-rated score, the effect is likely to be negligible.

Check your credit report after one month to see if it shows your mortgage was paid off. You can also view any impact it’s had to your credit score. Free copies of your credit file can be obtained from any or all of the major credit reference agencies, Equifax, Experian and TransUnion.

Pros and cons of clearing a mortgage

While clearing debt has obvious benefits, paying off your mortgage in full can also come with drawbacks. There could be reasons why you might want to direct the cash to other parts of your budget. Here is a round-up of both the pros and cons.

Pros

• Removes a major monthly outgoing from your household budget
• Saves on interest, if the debt is repaid early
• Financial security of not having to worry about rising interest rates affecting the debt, or threat of repossession if you miss payments
• Maximises equity owned in the property (which could be drawn on later if required).

Cons

• Could face redemption penalties and charges if repaid early
• Ties up a large portion of wealth in an illiquid asset – ie, it may not be easy to access quickly in an emergency
• Cash used to overpay or repay a mortgage in full could be put into savings or investments where it might grow faster.

Laura Suter, personal finance expert at investment company AJ Bell, says: “Bear in mind that if you pay off your mortgage you can’t easily get that money back if you did need it again. To release the equity you would need to remortgage, which isn’t a quick process.”

Other steps to take after clearing the mortgage

There will be a number of other jobs to tick off after your mortgage is cleared, to ensure your paperwork and financial matters are up-to-date.

• Cancel any automated payments: if you had bank standing orders or direct debits to pay your monthly mortgage payment ensure they are cancelled with your bank
• Contact your buildings insurance provider: let your insurance provider know that you have cleared your mortgage. If you were paying for home insurance through your mortgage lender you may need to arrange with the insurance company to pay the premium direct
• File paperwork somewhere safe: even though you no longer have a mortgage, it is sensible to keep all your documents, including digital files, a copy of the deeds to the property and your final mortgage statement, in case they are needed for reference in future
• Review personal finances: paying off the mortgage is a good chance to review all your finances, including any protection policies, general insurance and also checking you have a will and that it is up to date. You may also want to use this time to consider how you might use any disposable income, now that you no longer have a mortgage to pay.

What happens after I clear my buy-to-let mortgage?

Clearing the mortgage on a second property, such as a holiday home or investment property, will work in the same way as for an owner-occupied residential home. You’ll need to ask the mortgage lender to remove its charge on the property and ensure the records are up to date with the Land Registry.

If you’re looking to sell, gift, or swap your investment property after paying off the mortgage, capital gains tax (CGT) will be due on any profit (over and above the CGT allowance threshold of £3,000 for the 2024-25 tax year).

Some expenses from selling the property are tax deductible. It can be advantageous to get specialist tax advice when selling a second property.

How can I pay off my mortgage faster?

Paying off your mortgage more quickly can bring major benefits: you’ll be debt free sooner and pay less interest overall.

Most lenders allow borrowers to pay off up to 10% of the capital on their mortgage each year without penalty. You can usually choose to either increase your monthly repayments or pay off a chunk of the capital in one go.

Our overpayment calculator can help you work out the financial benefits of paying down your mortgage more quickly.

Bear in mind however, there are also pros and cons of overpaying on your mortgage to consider. Again, any spare cash you use to overpay or pay off your mortgage may not be easy to access again in an emergency, for example.

Should I pay off my mortgage or invest the money?

Perhaps the most compelling reason not to pay off a mortgage early is that it might be better to put that extra money into an investment, which will have the potential to grow and offer a decent profit or return.

That said, the investment growth is not guaranteed, and it’s important to be aware that depending on the type of asset you invest in you could lose the money.

By way of example if your mortgage has a 4% interest rate, but you could earn 5% or 6% if the cash was invested in an investment fund, such as a FTSE index tracker fund, then you could gain more by investing your money. On the flipside, many investments don’t provide guaranteed returns so it is impossible to say with certainty which option is better. There can also be tax implications with investing.

You’ll need to look at the mortgage rate, the potential upside from investing, whether or not you might need access to your money (this is known as liquidity), plus any tax incentives, such as investing via an ISA.

If you are trying to weigh up your options it can be beneficial to speak to a professional independent financial advisor who can assess your financial and tax position, as well as your future goals and explain the various pros and cons of each choice.

Ms Suter at AJ Bell says: “When mortgage rates were rock-bottom it felt like a no-brainer to use any spare money to invest, rather than overpay on the mortgage. But mortgage rates have been rising over the past two years and are now higher. It means many homeowners are revisiting this decision.

“For many people the decision of whether to prioritise paying off mortgage debt versus investing or saving the money is not just financial, it is likely to be based on their attitude to debt and their financial goals.

“Some people want to pay off their mortgage as soon as possible, so they can tick it off their life goals. Others would rather keep their mortgage borrowing and instead funnel spare cash into investing for the future.”

Where can I put my disposable income after clearing the mortgage?

Once you’ve cleared the mortgage you may turn your attention to how best to use any extra cash you have in your monthly budget. Many people will have a clear view of what they want to do with the money, but here are a few ideas:

• Other debts. If you still have other debts, such as a car loan or credit card balance, for example, the first port of call should be to get these cleared
• Retirement savings pot. You could consider adding extra money to your pension each month, or set up a standalone savings pot, such as in a tax-efficient ISA
• Home improvements. With more money available each month you could save towards upgrading your home – a new kitchen or bathroom for example
• Children’s or grandchildren’s education. You may be able to save a pot of money towards school fees or university costs
• Lifestyle. You may now have sufficient funds to put towards travelling to new places – at home or abroad – taking up a new hobby, joining a new leisure club, or buying a new car.

Can I borrow again after I’ve cleared my mortgage?

Whether you can borrow against your home again once you’ve cleared your mortgage will be subject to fresh affordability checks and maximum term limits on the loan. For example, if you’re close to retirement you may not be able to borrow over a long time frame – and this could make potential monthly repayments higher.

You will also have to weigh up a mortgage deal at the prevailing rates at the time, which might be higher than you’ve paid in the past. There could also be arrangement and property valuation fees to pay, which you’ll need to factor into the total cost of borrowing.

David Hollingworth, associate director at broker L&C Mortgages, says: “If you’ve repaid your mortgage but later have a need to borrow against the property to release some of the equity, then you may still be able to use a mortgage on the unencumbered property.

“You will need to meet the new lender’s affordability requirements as well as its standard criteria. There could be fees to set up the new mortgage as usual but also check for any additional legal costs.

“Some lenders may offer help with legal costs as they would with a standard remortgage, but others may not offer the same incentive for unencumbered properties.”

What happens if I’m close to the end of my interest-only remortgage?

You’ll only have paid off your mortgage once the capital and all the interest is repaid in full. If you have an interest-only mortgage, this means your monthly payment is just servicing the interest on the loan and you are not paying off the capital (the original mortgage amount borrowed).

If you are approaching the end of your interest-only mortgage term but you can’t repay the debt it is important to take action.

You could extend the mortgage term, for example, or remortgage (either with the existing lender or to a new lender) and move the debt onto a repayment basis, so you’ll be paying off the capital and interest until the debt is cleared.

If the property has risen in value you could consider selling and downsizing, using some of the equity raised to pay off some or all of the mortgage.