Paying off your mortgage is a major life event. It’s important to take a step back and think carefully about what comes next.
For most Canadians, buying a home is the biggest financial decision they’ll ever make — and finally paying off that mortgage can bring about a major lifestyle shift.
But before you give in to the temptation of splurging on a fancy new car or booking that dream vacation, financial experts recommend reviewing your financial plan. It’s key to make sure you’re still on track toward your long-term goals.
Nancy Taylor, an investment advisor at Meridian Credit Union situated in the town of Fonthill, Ontario, says once financial freedom is obtained, many opportunities open up.
“My job isn’t to tell people, ‘You should do this, this, and this,’” she says about working with clients. “It’s more about asking, ‘Okay, this is where you are today — where do you want to go next?’ The conversations can lead to really interesting places.”
For some, that next step might mean early retirement. For others, it could be travelling more or helping out children or grandchildren financially.
While mortgage payments typically make up the largest part of homeownership costs, Taylor points out they’re not the only expense. So the first step is figuring out how much cash you’re actually freeing up.
“Often, people bundle things like property taxes and life insurance into their mortgage payments,” she says.
That means your actual monthly savings may be less than you expect once the mortgage is gone.
Also, don’t forget about the rising costs of utilities and maintenance. Appliances wear out, and big-ticket items like roofs and windows need replacing from time to time — not to mention the occasional kitchen or bathroom upgrade.
Taylor says if you still have any other debts, especially high-interest ones like credit card balances, this is a great time to use that freed-up cash to pay them down.
If you’ve been skipping out on contributing to your RRSP (Registered Retirement Savings Plan), TFSA (Tax-Free Savings Account), or RESP (Registered Education Savings Plan), now’s the time to catch up.
“If you haven’t been maxing out your RRSP contributions and have lots of unused room, redirecting some of that cash flow can actually put more money in your pocket today,” she explains.
Paying off your mortgage also offers a chance to revisit other parts of your financial plan — such as life insurance. Now that you no longer carry a large debt, you may be overinsured.
“If you’re debt-free, it may be time to reassess whether you need that much coverage,” says Taylor. “This could also be a good opportunity to consider other types of insurance, like long-term care coverage.”
Becoming mortgage-free is also a smart time to review your will and estate plan. Now that your biggest liability is gone, make sure everything is up to date and aligns with your current situation.
Sumaiya Bhula, a senior manager at TD, emphasizes there’s no one-size-fits-all solution. That’s why having a personalized plan is crucial at this stage.
“The truth is, if you want to continue growing your portfolio and building your assets, you really need to take a holistic view of your long-term goals,” she says. “That’s where planning really comes into play — looking at your cash flow, deciding how to allocate it, and figuring out how much you’ll still have left for things like X, Y, and Z.”
Taylor adds that having a clear plan for your money is essential. Do not let an opportunity slip past you to pave your way further along your financial goals.
“I think your 50s are a crucial time to make sure your money is working as hard for you as it possibly can,” she says.