Paying off your mortgage is a legitimate cause for celebration, but don’t get carried away–you still have some work to do.
For starters, you have to make sure that both you and your city or country registrar of deeds have the documents proving that you are now the sole owner of your home. You’ll need to update your tax and insurance records to reflect the change in your home’s status. If your lender has been making tax and insurance payments from an escrow account you may be entitled to a refund, and you won’t want to forget that! You’ll need to be sure your credit records are properly updated.
With all this paperwork, it’s best to have a clear picture of everything you’ll need when your mortgage is finally paid off.
Begin With The Documents
When your mortgage is paid off your lender should mail you a canceled promissory note and a statement confirming that your loan has been paid in full. You may receive a canceled deed of trust or other documents.
Many lenders will also submit a certificate of satisfaction of mortgage release to the office that manages property records in your area, usually the county or city registrar of deeds. This document confirms that you are now the sole owner of your home. Some lenders may send this document to you, and in that case, you may have to submit it to the appropriate office. If your lender does not provide you with this document, ask for a certified copy from the registrar of deeds.
This process may take several weeks or months, but don’t forget to keep on top of it. Some lenders are slow to release documents and some may not do it at all. If you do not receive the documents, call your lender’s lien release department and ask for them.
Some lenders and jurisdictions may use different names for these documents, and the process and requirements may vary slightly in different states and with different lenders. Confirm with your registrar of deeds that all necessary documents have been filed with them and that their records show that your mortgage has been canceled. In many jurisdictions, you can complete this process online.
Keep Your Taxes And Insurance Up To Date
Many mortgage lenders add tax and home insurance charges to your mortgage payment. This money is placed in an escrow account and used by the lender to pay taxes and insurance premiums on the property. When you have paid off your mortgage you will take full responsibility for these payments.
If you have been paying into an escrow account you may be entitled to a refund if there is money left in the account when you make your final mortgage payment. Check with your lender.
Check on the tax billing frequency in your area. Some jurisdictions require quarterly payments, some annual. Arrange to have invoices sent to you if they have been going to your lender. Set aside money to meet your tax obligations.
Your lender has probably required you to have home insurance, and that requirement is now gone. Keeping your insurance up is still a good idea. If your home is damaged or someone is injured on your property that insurance policy can provide vital protection.
You’ll need to inform your insurance company that the lender no longer has an interest in your property and have the lender’s name removed from all documents. If you have to make a claim and your lender is listed as a beneficiary on your policy your insurance provider may send a portion of the claim to your lender.
Have the insurance company send invoices for premiums to you, or set up an automatic payment system with your bank. Some insurance companies offer discounts for paying off your mortgage or retiring. If yours doesn’t, you might want to shop around and see if another company will offer you a better deal.
Check Your Credit
Your lender may not report the payment of your loan immediately to the monitoring companies that prepare your credit reports. Check your credit reports and make sure that the closure of the mortgage account is recorded there. If it isn’t, call your lender and ask them to file a report.
Your credit mix affects your credit score. A good credit mix contains revolving credit, such as credit cards, and installment credit like your mortgage. If your mortgage was the only installment loan in your account you may see a drop in your credit when it’s closed. This will probably be small and temporary.
Any time there’s a significant change in your finances, it’s a good idea to check your credit and monitor any changes.
Manage Your Money Effectively
With your mortgage retired, you’ll have money to use for other purposes. Here are some options you may wish to consider:
- Taxes and insurance are now your responsibility. You could set up an account similar to the escrow account your lender used to make these payments. Building up a reserve in this account will make sure these important payments are always made on time.
- Consider setting up an emergency fund, if you don’t already have one. Many experts suggest keeping a minimum of three to six months worth of expenses in reserve.
- Your retirement or investment accounts are a critical part of your future. If your employer offers a 401(k) plan, be sure that your contributions are earning you the maximum matching payment. If you’re making less than the maximum contribution to a Roth or traditional IRA, consider adding more. If you have not yet started investing you may wish to consult a financial adviser for suggestions.
- If you have other debt you may wish to use your newly disposable income to pay it off, especially if it’s credit card debt or other high-interest debt. If you’re considering paying other loans ahead of schedule be sure to check for prepayment penalties.
- Consider other savings targets. Maybe you’ve always dreamed of an investment property or a vacation home, or you have a child or grandchild that needs a college fund. If you’re saving for other financial goals the money that used to go to your mortgage can help you achieve them.
You don’t have to wait until you’ve made your final payment to begin this process. If you’re getting close to the end of your mortgage you can start preparing a plan for closing your mortgage and managing the money that you’ll save.
If your final mortgage payments are approaching, it’s a good time to discuss the process of closing the mortgage with your lender and the local authority responsible for property registration. You may also wish to look into tax and insurance payment schedules and prepare to take on those responsibilities. You can also take time to celebrate. You’ve achieved a major financial milestone and you’re ready to take full ownership of your home!
Paying off your mortgage is a great opportunity to relieve yourself of debt and take ownership of your home. Planning ahead can help you make the most of it.