What To Do After You Pay Off Your Mortgage

What To Do After You Pay Off Your Mortgage

What Happens When You Pay Off Your Mortgage?

What Happens When You Pay Off Your Mortgage?

For many homeowners, one of the milestones on the road to financial independence is being able to pay their mortgage. With typical mortgages lasting 30 years, it can take a long time to reach this goal. But what happens when you pay off your mortgage? In fact, there are several steps to making your final mortgage payment and figuring out what to do next. Consider working with a financial advisor as you work towards your financial goals and complete independence.

How to Pay a Mortgage

When you’re ready to pay off your mortgage, follow these steps to reach your goal. Keep in mind that due to accrued interest, the balance on your mortgage statement does not equal the payment amount. Contact your lender online or by phone to request a payment statement.

The mortgage company will send you a letter with a specific payment amount due. This amount includes interest accrued through a certain date. Pay the amount due by the due date or expiry of the payment statement to terminate your mortgage. Any excess amount you pay will be refunded.

Since most mortgages include property taxes and homeowner’s insurance premiums in the monthly payment, there will be an amount left when your mortgage is paid off. Ask for an escrow account refund and set that money aside to pay those bills when they come due.

What Happens When You Pay Off Your Mortgage?

Once your final payment has been made, there are certain actions that the mortgage company and you should take to formalize this milestone.

  • Get mortgage documents: The mortgage company will send you a canceled promissory note, an updated trust deed and a satisfaction certificate. These documents prove that your mortgage has been paid. Save them in a safe location.

  • Stop automatic payments to your mortgage company: Make sure any automatic payments you have set up have been cancelled. With your mortgage paid off, you don’t need to send any more money to the mortgage company.

  • Send a mortgage discharge letter to your county: Your mortgage company should send all the necessary documents to your county clerk’s office informing them that your home is no longer bound by a mortgage. If they are not within 90 days, take your mortgage documents to the clerk to update their records.

  • Notify your insurance company: Contact your insurance company to let them know your mortgage has been paid. They may need a copy of your mortgage documents to verify this is true.

  • Celebrate this milestone: This is a very important occasion, so take time to celebrate it with your family and significant other.

Managing Your Home’s Ongoing Costs

What Happens When You Pay Off Your Mortgage?

What Happens When You Pay Off Your Mortgage?

Just because your mortgage is paid off doesn’t mean you no longer have any household expenses. It’s a good idea to set aside savings accounts for each of those ongoing expenses. Property taxes are usually part of the value of your home and are paid near the end of the year. Assuming the value of your home continues to increase, this bill will also increase each year. This bill varies based on the type of home you own, selected coverages and deductibles, recent claims and other factors. Although you can pay monthly, you often save money by paying once a year.

There are some homes in communities with home owners associations that charge dues. These dues are often monthly or quarterly. It is recommended that you set aside 1% of the value of your home for repairs and maintenance. Even if you don’t spend that much each year, you’ll need the extra for big projects. They might include things like re-roofing or painting your house.

Styles and tastes change over the years, so you may want to set aside money to pay for larger projects, such as updating bathrooms, remodeling the kitchen and replacing windows.

What You Can Do With Your Extra Money

When you pay off your mortgage, you suddenly get more money every month. Depending on your financial plan, some or all of these steps may be useful:

  • Focus on paying off debt: If you have other debt, “snowballing” your mortgage payment towards the next debt can speed up paying it off.

  • Build your emergency fund: Experts recommend having an emergency fund equal to three to six months of your monthly expenses. The good news is that the number is much smaller now that you have stopped paying your mortgage.

  • Maximize your retirement plans: If you’re not already doing so, it’s a great idea to put extra money toward maxing out your company retirement plan and a traditional or Roth IRA. This is especially true for investors 50 and over who have access to “catch-up” provisions.

  • Invest in a brokerage account: Once your retirement accounts are set up, investing in a brokerage account allows you to invest without locking up your money until you reach retirement age.

  • Increase your insurance cover: Many homeowners do not have adequate life, long-term care or disability insurance coverage. Talk to a financial advisor to find out what number you need to reach your goals.

  • Contribute to college savings accounts: If you have children or grandchildren, your goal may be to help them with their college expenses. Contributing to a Coverdale Savings Account or 529 plan is a good way for that money to grow tax-free for education.

Strategies to Pay Off Your Mortgage Fast

Most homeowners make all their payments according to the mortgage schedule. But there are other ways you can accelerate paying off your mortgage ahead of schedule.

  • Bi-weekly payments: Bi-weekly payments allow you to pay half of your mortgage payment every two weeks instead of once a month. This also leaves you paying one extra payment per year, which cuts about four years off the typical 30-year mortgage.

  • Lump sum payments: In addition to making the regular monthly payment, some homeowners pay extra when they can. Examples include tax refunds, annual bonuses, inheritances and other unexpected windfalls.

  • Rounding off payments: By rounding up your mortgage payment to the first $100 (or more), you’ll be paying extra toward your mortgage principal each month. Most homeowners won’t lose the extra payment out of their monthly budget.

  • Mortgage payment fund: Instead of paying extra towards your mortgage, you can set up an investment account dedicated to your mortgage. You’ll add extra money to this account to earn stock market returns – provided those returns beat your mortgage interest rate. At some point in the future, you can cash out this account and pay off your mortgage if you wish.

Base line

What Happens When You Pay Off Your Mortgage?

What Happens When You Pay Off Your Mortgage?

Paying off your mortgage is a dream for many homeowners. When you pay for it, there are certain steps you should take to formalize it. Plus, now that your mortgage is gone, you’ll have extra money to use on your other goals. But, you also need to set aside money for ongoing expenses, such as property taxes and insurance.

Tips for Paying Your Mortgage

  • Financial advisors can recommend investments that lower taxes and earn higher returns so you have more money to pay your mortgage. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisor at no cost to decide which one is right for you. If you’re ready to find an advisor to help you achieve your financial goals, get started now.

  • Do you have a good grasp of what the current mortgage rate environment looks like? Use SmartAsset’s mortgage rates page to learn more.

  • One of the best tips for paying off your mortgage is to buy a home that is over your budget. It’s easy to get caught up in the excitement of buying a home and spread yourself too thin. Use our calculator to help you determine how much house you can afford based on your finances.

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