You've submitted your last mortgage payment payment, checked your balance and read those three hard-earned words: Paid in Full. Congratulations, you've finally finished the mortgage payoff process, and you have joined the ranks of property owners who can claim to own their homes free and clear.
So what happens next?
There are a number of important documents you may receive in the mail, and there are a few responsibilities you'll need to take over now that no bank has a lien on your home. However, the exact process will vary based on your state, mortgage lender and mortgage type. Here's what to look for after you've finished paying off your mortgage.
What documents do I get after paying off my mortgage?
You may be wondering what happens to deeds when mortgages are paid off, and whether you'll officially receive the title to your home. In fact, the first thing you should look for after paying off your mortgage is a letter mailed to you by your lender, including several key documents related to your loan.
Documents that may be released after paying off your home
- A statement showing that your balance is paid in full
- Your canceled promissory note
- A certificate of satisfaction
- Your canceled mortgage or deed of trust
When you first took out your mortgage, you signed a promissory note in which you promised to pay back your loan in a set number of years and at a certain interest rate. For all intents and purposes, this is what we actually refer to when we say we're taking out or paying off a mortgage.
Your mortgage—or in some states your "deed of trust"—is the document that gives your lender a legal interest in your property. Your lender should have filed it with your local city or county office of land records after you took out your loan.
How do I get the deed to my house?
Once you've paid off your loan, your lender should mail you your original promissory note with the words "Paid and canceled" or something similar to this to explicitly state you've satisfied your debt. Around the same time, the lender may also have sent a certificate of satisfaction to your city or county office, which will then release your mortgage or deed and update their records to show that you are the sole proprietor of your home.
However, not all lenders release original documents, and some that do are very slow about it. Your lender may send you the certificate of satisfaction instead of or in addition to your promissory note. If this is the case, you'll have to file it with your local records office personally. In either situation, it's your responsibility to verify with your local office that your mortgage has been released and that no lender holds a lien on your home.
If your mortgage included an equity line of credit, your lender might not cancel your mortgage, since you could still take out a loan against your mortgage. In this situation, you may need to contact your lender to request a termination of your loan agreement.
If you haven't received your canceled promissory note or certificate of satisfaction from your lender within a few weeks of your final payment, contact your lender to ask for the documents to be released. It's in your best interest to obtain and save the original documentation related to your mortgage and loan. However, verifying with your local records office that your mortgage has been canceled is the most important step.
In addition to contacting your records office, you may want to run a credit report as a second confirmation that no outstanding mortgage is associated with your name. This can be done for free once per year with each of the three major credit bureaus at AnnualCreditReport.com.
What am I responsible for now that I've paid off my house?
When you closed on your home, your lender likely required you to agree to pay an extra amount of money each month, which was put into an escrow account to pay property taxes and homeowners insurance premiums on your behalf. Now that you, the borrower, have paid off your loan and have become the sole owner of a property, you’ll have to handle these responsibilities on their own.
Fortunately, your mortgage lender may have required you to pay an amount slightly larger than necessary to satisfy these bills. If any excess funds were left in your escrow account after you submitted your final mortgage payment, your lender should send you a check for this amount. Make sure to ask your lender if any amount was left over in your escrow account and when you'll be receiving your refund.
We recommend depositing this refund into a bank account that will operate as your own monthly repository for real estate expenses. Next, determine the amount your lender put into your escrow account each month, and begin storing an equal amount in your own bank account. This way, you'll never be surprised by a hefty tax bill.
Do you still pay property tax after your house is paid off?
Now that no lender is submitting property taxes on your behalf, you'll need to pay them directly, pursuant to the property tax laws of your state or municipality. States and counties levy real estate taxes differently, with some regions requiring payment only once annually, while others require them each quarter. Research the property tax laws of your region to determine where and how frequently to submit your payments.
Update your homeowners insurance policy
As soon as you've verified that your mortgage or deed of trust is canceled, contact your homeowners insurance company and inform it that you are the sole owner of the insured property. This is an important step, as any named policyholder is entitled to a payment if you file a homeowners insurance claim. If your home is damaged and you file a claim, having your former lender's name on the policy may result in your insurance company sending the lender a portion of the claim amount. This will only cause delays and frustration for you, especially if you've paid a large amount for repairs in anticipation of a reimbursement. In addition to updating the homeowners named on your policy, make sure you set up future premiums to be deducted from your own bank account.
You may be wondering if you still need homeowners insurance, since it was only required by your lender. While homeowners insurance is not federally mandated, we strongly recommend against canceling your policy.
Homeowners insurance provides protection against liability if someone is injured on your property, and against a number of perils that could significantly damage your home. Without insurance, an accidental fall or dog bite could leave you responsible for a hefty lawsuit. Likewise, a fire or other disaster could leave you on the hook for the total price of your home and all your belongings. Such a loss might be more than you could recover from, especially if you're nearing retirement.
Fortunately, many insurance companies offer discounts for significant milestones, such as paying off your mortgage or retiring. Ask your insurer if you qualify for a discount. If you don't, consider comparing quotes from a few insurers in your area to find a more affordable policy.
## What to do with that extra money each month
Now that you'll no longer need to make mortgage payments, you'll have a surplus of cash each month. You may be tempted to use these funds to treat yourself to a new toy or vacation you've been wanting, and certainly—you deserve to. Not many people stick around in one home long enough to see the end of their mortgage. However, there may be some other financial obligations you should consider settling before you splurge on yourself. Here are three things you should consider doing with that extra money.
Pay off other debts
If you've finally paid off your mortgage debt, keep that trend going by applying your monthly mortgage payment to other debts. Start with high-interest debts, such as any unpaid credit card balances. Once that debt is paid off, move to the debt with the next-highest interest rate, such as any car payments or any student loans you're responsible for. Becoming mortgage-free is a liberating experience, but becoming completely debt-free is even better.
Top off your emergency fund
Every family should work toward building a safety-net fund that can cover unexpected medical emergencies, an expensive home repair or four-to-six months of expenses if you lose your job. If you don't already have such a fund, or if it isn't sufficiently funded, redirect your former mortgage payment here until you've saved your target amount.
Catch up on retirement savings and other investments
If you've settled all debts and built up an emergency fund, your next priority should be to make sure you're on track for retirement. If you're not already, use your extra cash to maximize your annual IRA contributions. Each individual under 50 is allowed to invest up to $5,500 in a Roth or traditional IRA in 2018, and each individual over 50 is allowed to contribute $6,500. Also, if your employer offers a 401(k) program with a company match, make sure you're contributing enough to earn at least the maximum match.
In addition to retirement savings, many families have other investment and savings goals, such as funds for a new car or their children's college tuition. Once you've determined that your retirement savings are on track, consider bolstering these investments.
After your financial priorities are in order and you've satisfied all debts, reward yourself for passing all these milestones. Take a trip with your loved ones, or get involved with a charity that's meaningful to you. You've worked hard to get to where you are. Take time to enjoy it.