Buzz
If you're a homeowner, there's a strong likelihood that you carry a mortgage—approximately 80% of homeowners in the U.S. are in the same position. A mortgage is often referred to as ‘good debt’ because it’s a low-interest loan that helps build wealth and assets. Some financial experts even argue that you should keep your mortgage for as long as possible to allow more funds for investment. However, as you approach the finish line in paying off your mortgage, it’s time to celebrate. Whether it took five years or 30 years, paying off such a significant debt and fully owning your home is a milestone worth acknowledging.
Besides planning for a traditional mortgage burning party, there are several other things to consider: paying off your mortgage brings about a flood of paperwork and life changes that require your attention. Here’s what you need to be aware of as you make your final mortgage payment.
Double-check your paperwork
To get ready for a life without a mortgage, your first task is to ensure that you know which documents are required, and that you gather them accordingly. In today’s world, if it’s not recorded somewhere, it might as well not have happened. When you reach out to your lender for the mortgage payoff statement, they should provide a list of the documents they will be sending to close your mortgage account. If they don’t, don’t hesitate to follow up because document requirements can vary between lenders. There could be associated fees for some of these documents, but those are generally rolled into the final payoff amount. If not, you’ll need to be prepared to cover those fees separately.
In most cases, when you pay off your mortgage, you can expect to receive these essential documents:
Promissory note. This is the document you signed when you took out the mortgage—it’s a legal contract in which you agreed to repay a debt. Your lender will return this to you, typically marked ‘canceled,’ confirming that your loan is paid off.
Deed of reconveyance. This document shows that the mortgage has been paid in full and that the property title has fully transferred to you. If a third party was involved in the mortgage, there might also be a deed of trust involved.
Satisfaction of mortgage document. This will be recorded with local authorities to update ownership and title records. You should also keep a copy for your own protection in case there’s an error in the government’s filing system.
Final mortgage statement. While it may seem redundant given the other paperwork, be sure to get a final statement confirming that your mortgage is completely paid off. When dealing with large financial institutions, it’s always better to have too much proof than too little.
Once you’ve paid off the mortgage, make sure to check your credit reports about one to two months later to confirm that the debt is marked as closed. Also, verify that you receive an escrow refund from your lender, as there is often a small balance left in the escrow account that legally belongs to you.
Get ready for changes ahead.
After you’ve collected all the necessary documents and made the world aware of this major shift in your financial situation, brace yourself. Because paying off a mortgage isn’t just about saying goodbye to those hefty monthly payments—it can bring a host of other changes to your life:
Credit impact. Credit scores can be unpredictable, and this could be one of those moments. You might see an increase due to a reduced debt-to-income ratio, or a decrease because your credit mix is less diverse.
Mortgage interest tax deduction. One major effect of paying off your mortgage is the loss of the tax deduction that allows you to subtract mortgage interest from your taxable income. It’s a good idea to consult a tax expert to understand how this will affect your tax bill for the next year.
Cancel autopayments. If you set up automatic payments for your mortgage to avoid missing any deadlines, don’t forget to cancel them now. You don’t want to end up dealing with the hassle of trying to get a refund from a large bank for overpayments.
Reroute tax and insurance statements. If your lender was handling your property taxes and insurance payments through an escrow account, you’ll now need to reach out to the insurance company and your local tax office to ensure those statements are sent directly to you. You’ll also need to start paying these bills yourself, so make sure you have a savings plan in place to cover them.
