Paying off your mortgage is an exciting milestone that frees up a significant portion of your monthly income. However, even without a mortgage payment, homeowners still face recurring housing-related expenses. Here are some of the common bills that remain after you pay off your mortgage.
Property taxes
Property taxes are assessed annually by your local government and help pay for public services like schools, police, infrastructure, and more. Unlike your mortgage payment, property taxes continue even after you pay off your home loan. The amount you owe depends on your home’s assessed value and the property tax rate in your area, which is usually expressed as a percentage. For example, if your home is assessed at $300,000 and the property tax rate is 1.25%, you would owe $3,750 per year in property taxes.
Homeowners insurance
Homeowners insurance protects your property and assets. It covers damage from threats like fires, storms, theft, and more. Your mortgage lender likely required you to have homeowners insurance. But maintaining coverage remains critical even after paying off your mortgage to safeguard your home’s value. The average annual homeowners insurance premium in the U.S. is around $1,200.
Home maintenance and repairs
As a homeowner, you are responsible for maintenance and repairs like plumbing leaks, replacing appliances, painting, landscaping, and more. These costs can really add up over time. It’s a good idea to budget around 1%-4% of your home’s value annually for maintenance and repairs. For a $300,000 home, that would mean budgeting $3,000-$12,000 per year.
Home improvements
In addition to essential repairs, you may choose to make discretionary home improvements like remodeling your kitchen, finishing your basement, or adding a deck. These projects can enhance your home’s value while allowing you to customize it to your lifestyle. Plan ahead and save for any major home improvements you would like to complete. The average kitchen remodel costs around $15,000 while finishing a basement can run between $25,000-$50,000.
Utilities
Utility costs for electricity, gas, water, sewer, trash removal and other services continue regardless of your mortgage status. In fact, utility bills sometimes rise when people pay off their mortgage and spend more time at home. Budget $150-$400 per month for typical utility expenses. Ways to reduce utility bills include upgrading appliances, installing programmable thermostats, adding insulation, and modifying energy use habits.
HOA fees
If you live in a condo or a neighborhood with a homeowners association (HOA), you’ll keep paying dues after your mortgage is paid off. HOA fees cover shared amenities and services like pools, parks, tennis courts, groundskeeping, recreation centers, and community security. HOA dues average $200-$400 per month but can exceed $1,000 for luxury communities.
Private mortgage insurance
Private mortgage insurance, or PMI, is an additional policy that protects the lender if you default on a conventional loan with less than 20% down payment. You may be able to cancel PMI once you reach 20% home equity. This usually happens automatically around the time you pay off your mortgage. But if you pay off your loan early, request to stop paying PMI once you hit the 20% threshold to avoid overpaying.
Flood insurance
If your home is located in a FEMA-designated high-risk flood zone, your mortgage lender likely required flood insurance. This coverage remains important after paying off your mortgage to protect your home from flood damage. Flood insurance rates average $700 per year but vary considerably based on your location’s risk level and property specifics. You can drop flood insurance after paying off your mortgage if you don’t live in a high-risk flood zone.
Mortgage acceleration fees
Some lenders charge mortgage payoff or acceleration fees when you pay off your loan early. These range from $0 to 5% of your remaining balance. Acceleration fees are most common with commercial real estate loans but sometimes apply to residential mortgages too. Check your loan documents and ask your lender if any fees apply when preparing to pay off your home loan.
Closing costs
When you pay off your mortgage, the lender has to prepare legal paperwork to release their lien on your home. Some banks process mortgage payoffs internally at no cost. Others use a third-party closing agent and charge modest fees in the $50-$150 range. Closing agents may also charge notary and recording costs when you settle your mortgage.
Opportunity costs
Paying off debt always feels good. But sometimes it makes more financial sense to invest surplus funds instead of prepaying a low, fixed-rate mortgage. Run the numbers to see if you could generate higher returns by investing extra cash in retirement accounts, brokerage funds, real estate, or other assets versus putting that money toward your mortgage principal. Evaluate your own risk tolerance along with the numbers when deciding between prepayment and investing.
Other debts
Don’t let your mortgage payoff make you complacent about other debts. Shift focus after your mortgage is gone to paying off higher-interest debts like credit cards, auto loans, and HELOCs. Avoid running up new debts as well. Managing other obligations smartly keeps you on firm financial footing after becoming mortgage debt-free.
Emergency fund
An emergency fund covering 3-6 months of living expenses is important for every homeowner, with or without a mortgage. If you depleted this safety net to pay off your mortgage, be sure to replenish it quickly. Having cash reserves helps you handle surprise expenses without taking on costly debt. Automate deposits to your emergency account to build discipline around saving after achieving your mortgage payoff goal.
Table summarizing typical costs that remain after paying off a mortgage
| Expense | Average Annual Cost |
|---|---|
| Property taxes | $3,750+ (varies based on home value and local rates) |
| Homeowners insurance | $1,200 |
| Maintenance and repairs | 1% to 4% of home value |
| Utilities | $150 to $400 per month |
| HOA fees | $200 to $400 per month |
| Flood insurance | $700 per year (if required) |
Conclusion
Paying off your home loan is a big feat that frees up monthly income. But homeowners still face recurring expenses like property taxes, insurance, utilities, HOA fees, maintenance and more. It’s important to budget for these bills so your newfound mortgage-free status remains financially sustainable. With some planning and discipline, you can cover your housing costs and make the most of life after paying off your mortgage.