What Happens When You Pay Off Your Mortgage in Canada?

Depending on where you are in your mortgage repayment arrangements, paying off a mortgage in full in Canada can be fairly straightforward. However, if you have a large balance and a term and amortization period, you will probably incur penalties when you pay off the entire mortgage. 

What happens when you pay off your mortgage in Canada?  

If you have the cash to discharge your mortgage loan in full and cover any penalties incurred, congratulations. Owning your home outright is the dream of most Canadians and an important milestone.

So how do you go about paying off your mortgage? The steps are as follows:

  1. First, contact your lenders to let them know your intentions and to find out what your prepayment penalties will be. 
  2. Arrange to pay the final sum (penalties, principal, HELOC balance if applicable, and any interest to date).
  3. Your lender will notify you that you’ve paid your mortgage in full. 

What do I need to do after paying off my mortgage? 

After paying off your mortgage, you may feel like you are finally free from debt, but there are a few more steps to take before becoming officially mortgage free.

  1. The next step involves discharging your mortgage. According to Canada.ca, when you pay off your mortgage and meet the terms and conditions of your mortgage contract, the lender doesn’t automatically give up the rights to your property. You need to have the local land registry office remove your lender’s interest in your property from the title. This procedure is called discharging a mortgage and involves you, your lender, and your provincial or territorial land registry office. 
  2. Depending on your home province or territory, you may be able to do the paperwork yourself, but in most cases, you will need the help of a lawyer, notary, or a commissioner of oaths. 
  3. Keep in mind there are fees associated with the final steps of discharging your mortgage.
  4. Once you have taken care of these administrative tasks, you can enjoy knowing that your home is yours – free and clear!

Is it good to pay off your mortgage early in Canada?

It’s no secret that Canadians are some of the most debt-ridden people in the world. The average Canadian household owes $1.82 for every dollar they earn, and a large portion of that debt is from their mortgage.
But is it really a good idea to pay off your mortgage early?

Depending on your financial situation, there are pros and cons. Before you decide to pay off your mortgage, ask yourself the following:

  • Do you have high-interest debt, like credit cards or a personal line of credit? It might make more sense to pay that off before paying your mortgage.
  • Would that money serve you better if it was invested?

Should I use my house to invest, or remain mortgage free?

More Canadian homeowners should be asking this question. How do the financial benefits of paying off your mortgage compare to using your home for investment purposes? 

That depends on how you leverage the equity you have in your home.

Many homeowners don’t realize that a diversified mix of investments tends to earn more over 25 years – the standard mortgage amortization length in Canada – than the amount they would save in interest charges by paying off their mortgage early. Canadian homeowners can also benefit from making their mortgage payments tax-deductible!

Sound too good to be true? 

It’s good and true – you can benefit from investment earnings and tax-deductible mortgage payments using The Smith Manoeuvre. 

The Smith Manoeuvre is a financial strategy that allows homeowners to use their home equity to invest in other assets while still paying off their non-deductible mortgage and eliminating that debt more quickly that otherwise possible. For many people, their home is their largest asset, and if they want to find ways to make it work for them, The Smith Manoeuvre may be the answer.

The Smith Manoeuvre is a legal tax strategy that allows your mortgage interest payments to become tax deductible. This lets Canadians eliminate expensive, non-deductible mortgage debt faster than the banks would have you, generate valuable tax deductions every year, and invest for your future – starting now.

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