What to Do with Your Money After Paying Off the Mortgage

Posted on: May 14, 2024

By Noel D’Souza, CFP®
Director, Communications

It has been a long road, but you have finally… FINALLY paid off your mortgage. Congratulations!! Your home is now truly yours.

Given the marked rise in interest rates over the last two years with a related rise in mortgage payments – in the last quarter of 2023, CMHC reported average monthly payments for new mortgages of $2,143 Canada-wide, with high priced regions seeing averages of over $2,900 – there’s a good chance that you’re freeing up a very sizeable chunk of cash every month which can now be put to other uses.

Apart from a “mortgage burning party”, where should you start? Here are six ideas to get you started.

1. Knock out any remaining high interest debt

It’s understandable that paying your mortgage was your first priority… after all, you didn’t want your family to be homeless, and with mortgage payments and the prices of, well, *everything* going up and up, you might have had to lean a little on credit to make it through the month.

Now that your mortgage is toast, it’s time to knock down those outstanding credit card balances, expensive car loans, lines of credit, etc. which, when paid off, will free up even more cash to put to better uses.

2. Beef up your emergency fund or “cash wedge”

Depending on your circumstances, it’s advisable to have 3-6 months’ worth of expenses in readily accessible cash should an emergency arise.

If you’re planning to transition to retirement in the next few years, you might even want to extend this to a couple of years of expenses to build a “cash wedge”. This stash of cash allows you to cover your day-to-day expenses once your employment income ends, without being forced to sell investments during a temporary downturn to pay your bills.

3. Put the kids through school

It’s likely that your kids will be heading off to post-secondary education around the time that your mortgage is paid off. With residence and a 4-year degree costing an average of $75K, you can use some of your freed up cash flow to assist them, either via a direct contribution towards their fees or more effectively via a Registered Education Savings Plan (RESP) contribution.

A $2,500 contribution attracts at least a 20% match from the government via the Canada Education Savings Grant (CESG), possibly more depending on family net income. You may even be able to catch up on a couple of years’ worth of contribution room and CESG, providing a nice boost to your kid’s beer… errr… tuition fund.

4. Boost your savings

There’s a good chance that you weren’t able to contribute significantly to your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) while raising a family and paying down a large mortgage.

Now that the mortgage is in the rearview mirror, and with retirement likely just a few years away, you can focus on socking away as much as possible while lowering your income tax. If you can put away $1,500/month from age 50 to 65, with just a 5% annual return you’ll end up with about $400K. Not too shabby!

5. Enjoy it!

You’ve worked long and hard and probably sacrificed quite a bit over the years. Paying off a mortgage is worthy of celebration. So, live a little!

Perhaps you’ve endured an outdated kitchen or bathroom for years and would like a change of scenery. Make a reasonable budget allowing you to pay off a home renovation within a defined timeframe in accordance with your other financial goals, and then go for it! Keep in mind the purpose of any renovation, whether for your own long-term enjoyment or for increasing your home’s resale value and stick close to your budget. It’s easy to get carried away.

Maybe you would like to invest in a vacation or income property, with a view to it becoming your eventual retirement home. Again, it’s vital to make a sound plan considering all the financial – and non-financial – factors before committing yourself to yet another mortgage.

If you’re able to accumulate enough retirement savings and find your expenses post-mortgage will be comfortably covered by your income in retirement, you might even consider retiring early, or transitioning to a less demanding work schedule. Before you make this move, work with your financial planner to ensure you are well prepared for such a substantial life change.

6. Give to others

If you’ve done some or all of the above and still find yourself with surplus income available, you might find no greater joy than sharing your good fortune with others, whether it’s family, friends, your community, or causes that are dear to you.

Indeed, on the 7-Stages of Financial Well-Being, the highest level is Financial Fulfillment. It’s a level most people aren’t even aware of, being content with Financial Freedom, but it can provide real meaning and purpose to one’s life once our other financial needs are taken care of.

The freedom that paying off one’s mortgage brings is something heavily indebted homeowners can only dream about. But once you’ve achieved it, the possibilities really are endless. Your financial planner can help guide you to being mortgage-free sooner, and once you’re there, work with you to identify and achieve new and exciting life goals.

Category(s): Financial Planning
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