I’ve Paid off the Mortgage, Now What?
So, you broke up with the bank and paid off the mortgage? Congratulations!
Pat yourself on the back. Seriously. Paying off the mortgage is an awesome achievement and one you should be proud of.
Related: Dear Bank, It’s Not Me, It’s You
According to a recent article in the Washington Post, only 34 percent of American homeowners have 100% equity in their homes. Frankly, I was shocked the percentage is so high. But remember this number includes Americans of all ages, including those who have lived in their homes FOREVER, those who’ve paid off the mortgage or those who never had a mortgage. Not sure I even know anyone who has a home and NEVER had a mortgage.
But don’t rest easy just yet, there are a few more things you should do after you break up with the bank.
1) Check the paperwork
When a mortgage loan is paid in full, the lender should provide you with documents proving that the home (finally) is yours and yours alone. The lender no longer has ANY claim to your property.
Depending on where you live, this paperwork may include:
• A statement showing that your balance is paid in full
• Your canceled Promissory Note (this is the note you signed when you first obtained the mortgage)
• A Satisfaction of Mortgage statement or Release of Deed of Trust (which legally releases your property from any claim by the lender)
In our case, I refused to leave the meeting with the bank representative (in which we paid off the mortgage), without at least 1 official document stating the loan had been Paid in Full. We received the official paperwork several weeks later in the mail.
If you haven’t received any documents within a few weeks of your final payment, contact your lender and request the documents be released. Be sure to keep the originals stored in a safe place.
2) Contact your property insurance carrier
Notify your insurance carrier that you are the sole owner of the property and there is no longer a lien on the home. Make arrangements to pay the premium yourself, if the lender has been paying it on your behalf.
Insurance claims are no fun to deal with, especially if there is a 3rd party (like the lender), involved.
Back in 2005, our home in South Florida incurred extensive damage from a hurricane. Hurricane Wilma.
While struggling with the effects of Wilma (like missing part of our roof, broken windows, a collapsed pool enclosure, property damage), insult was added to injury trying to get the lender to release money to us.
After the insurance adjuster visited the home to assess the damage, we contracted to have the home repaired. The insurer was quick to pay once the contractor bills were submitted.
However, the insurance company paid the lender.
It was a lot harder trying to get the lender to release the funds to us. We had to jump through a whole new set of hoops. Like providing pictures of the completed work, invoices from the contractor, copies of the contractors’ licenses, etc.
And the lender was slooooow to release the funds. Meanwhile the contractors were waiting on their money.
If you no longer have a lien on your home, save yourself this hassle. Remove any lien holder from your policy to make sure there is no delay in getting your money in the case of a claim.
3) Contact your County Recorder’s Office
Most likely, your lender will forward an original executed Release of the Lien to the Recorder’s Office of the county in which the property is located. If the lender does not forward the document, then you will need to get this release and submit it to the Recorder’s Office yourself.
If the release was submitted by the lender, you will want to contact the Recorder’s Office directly to see how long it will take to process it and how you can obtain a recorded copy for your safe keeping.
4) Verify when and how much property taxes are owed
If the lender has been paying the property taxes on your behalf, the responsibly to pay the taxes now falls squarely on your shoulders.
Make sure the tax office has your correct address and verify they will send the property tax bill directly to you.
Understand when the taxes are due, as the way taxes are collected differs by region.
For example, the annual property tax on our (unimproved) land in the US is due on October 1 and considered delinquent on December 31.
The property tax on our home in Canada is due in 4 equal installments: the first day of March, May, July and September of each year.
The point is that every region handles property tax payments differently. Make sure you understand when and how to pay your property taxes (online, in person or via mail).
5) Cancel any automatic deductions for your mortgage
Believe it or not, the lender no longer wants to get your money.
If you had your mortgage automatically deducted from your bank account and you forget to cancel it, it causes a headache for everybody. The lender will return your money, EVENTUALLY. However, it may be a slow process trying to get the money back.
Do yourself a favor and cancel it up front. Or better yet, have the same amount automatically deposited into a savings or investment account. See # 8 below.
6) Make sure the lender sends you any excess money
Typically, within 30 days after receiving the payoff, the lender will forward any money (that was paid in excess of the payoff amount and/or any money held in an escrow account) to you. If you think you are due money back and don’t receive a check (or automatic deposit) within a reasonable amount of time, contact your lender.
7) Check your credit report
After a few months, check your credit report to make sure the mortgage shows a zero balance. Note that it may take several months for your paid off loan to hit your credit report.
8) Have a plan for the money you would normally be paying on the mortgage and Don’t Use it as an excuse to spend more
I’m embarrassed to admit that the month after we paid off our mortgage, I bought a new sofa.
I didn’t need a new sofa, but I wanted one. Ten-year-old plaid is bad. Reupholstering is expensive, and I just “happened” to find a beautiful sofa on clearance at a local furniture store.
I say “happened” because my trip to the furniture store didn’t just “happen.” It’s not like my car broke down in front of the store. No, I purposely went there just to “look.”
One quick swipe of the VISA later and I’m arranging delivery of the new sofa to my home.
However, as my husband accurately predicted, once you start getting NEW stuff, the OLD stuff looks pretty bad. The outdated coffee table which looked fine with our outdated sofa didn’t look so good with the beautiful new couch.
Many trips to many stores and many swipes of the VISA later and the entire room looked better. With the brand new coffee table, artwork and window coverings.
Unfortunately, this new look cost some moolah. In fact, it cost what we would have been paying in monthly mortgage payments times 3. For the next three months, we didn’t save any of the money that had previously been earmarked for the mortgage.
It would have been much better if I had set up an automatic deposit into a savings account for this money. I wouldn’t have missed the money, since it was already set up as an automatic withdrawal for the mortgage.
If the mortgage was not your only debt, then why not use the amount you were paying on the mortgage to knock out the other stuff? Or build up your emergency fund? Or invest it?
In any event, don’t be like me. Automate it, so you won’t be tempted to spend the money without purpose.
9) Pat yourself on the back AGAIN! Seriously.
According to data from Cometfi.com, approximately 80% of the American population has some type of debt.
For many people, the mortgage debt is the last debt they tackle. Once they pay off the mortgage, they are debt free!
If this is the case for you, then you are truly in the minority. And that is great cause for celebration!