What to Do When Paying Off a Mortgage

So you just paid off your mortgage?  What do you do now?  Paying off your mortgage can be an exciting time, but the process is a bit more complicated than just sending in that last check.  Here is what you need to know.

Our Mortgage will Pay Off in a Few Months

Before we start some background is in order. Our mortgage will be paying off this calendar year.  I can say that with absolute certainty as the remaining balance will pay off with normal payments finalizing in December. Hurray!  Anyway, as part of this major life step, I have been investigating what to do when the payoff comes.  This is the culmination of that investigation.

The Process of Paying the Mortgage Off

So first off, understand that paying off your mortgage may not be as simple as writing a large check.   Many lenders require you to call in and get a payoff quote.  Some charge a fee for that quote.  Even worse, some types of loans have penalties for early payoff.  

Thankfully our loan does not have one of these fees.  However, to make a payment beyond 20% of our remaining balance that exceeds a monthly payment we are required to call in for the payment.  Honestly, I plan on riding our remaining payments fully through to December, so I will not be experiencing this process.  But in general, writing a letter or making a call can get the process started.

Cancellation Confirmation

Once you have your payoff balance and pay it, the fun begins.    Your lender should send you a cancellation statement that your mortgage is paid in full.  You should be monitoring for this letter and if you do not receive it within a month of payoff you should contact your lender.

Filing Your Mortgage Cancellation, The Most Important Step

Your lender may also file your payoff with the county.  Not all lenders do this.  If they do not, then you will need to do so.  Search for your county deeds site online to find the correct method to do so if necessary.  Either way, you should probably monitor your payoff status with the county to ensure the lien shows up as released from your mortgage.    Our own county has a website where you can query your property and see that a lien has been released.    This step is extremely important and you should keep copies of all associated paperwork.

Changing Up Home Owners Insurance

After you have validation that your mortgage is canceled you should contact your homeowner’s insurance company and notify them of the removed lien.   Without doing this should you ever need your insurance for a major issue the payment might go to the lender rather than you.  That could be a major hassle, so it is important not to delay this step.  In addition, some lenders may provide you a discount now that your mortgage is complete.  Finally, if your homeowner’s insurance is paid out of mortgage escrow now is the time to set up alternate payment methods.

Escrow Pay Outs

Speaking of escrow, any remaining balances from your escrow should be refunded to you by your lender at mortgage payoff.  I would recommend making it a point of double checking the payoff is correct.  We have experienced inaccuracies in escrow payouts when refinancing and selling other homes.  

Setting Up Ongoing Payments for Property Taxes

Now that your escrow is paid out going forward you will now need to remember to pay your property and school taxes on time each year.  You should look up the timing with your county and mark it on your calendar.  Most counties send reminders, but not all.     Then when it occurs you need to make sure to pay it on time to avoid penalty.

This can be good and bad.  The good news is if you had escrow you were missing out on interest on your escrow amount over time.  You were also unable to pay with other vehicles like credit cards, where taxes may allow a decent opportunity to meet credit card minimum spend.  (Remember to check for surcharge amounts for card usage to ensure this is worth the effort).

Ensuring the Tax Man Gets Paid  

The bad news is, you now have to remember to pay on time.   I’ll be honest,  besides not feeling like calling in to pay our mortgage early, the main reason I am waiting until December for payoff is to have one last tax escrow payment.       I have yet to adjust our cash flow to handle our yearly property tax payout, which normally hits in late September. (Note every county has different timing).

If we were to pay our mortgage off before the property tax due date there is some risk the escrow amount would not flow back to us in time.    Even worse, the last time we refinanced we did shortly before the tax bill hit.  Then we had a period where it was not clear if the mortgage company paid out the escrow to the county or not.  Given the potential penalties involved, I long ago decided I will never adjust a mortgage immediately preceding a tax payout.

What to Do with the Money No Longer Going Towards a Mortgage?

Well, that is it for the immediate process of paying off your mortgage.  That only leaves what to do with all the extra money from those previous payments.    Now we need to preface this section with a reminder, you now need to budget and cash flow to pay taxes and homeowner insurance where you may previously have not with escrow.  It will be a small amount of your new found payment decrease, but that doesn’t change the need to do so.

Over the years I have found the best way to handle a reduction in debt payments is to redirect those payments into savings.  If you can live without the cash while paying the mortgage then you don’t need it after.    For us, I will be setting up an auto withdrawal for the funds to our online savings account.    That auto withdrawal is almost entirely a psychological move to make us feel like those funds are not there to spend.  Then once a month I will be redirecting this money to one of a real estate crowdfunding site, the market, or bonds depending on our asset allocation.

How do you plan on using your increased cash flow once your mortgage is paid off?  Anyone else expecting a payoff in the next year?