What Happens When You Pay Off Your Mortgage?

Paying off your mortgage provides financial relief and freedom, allowing for better cash flow and the ability to focus on other financial goals. 

The road to homeownership is long and arduous, but the day will come when you complete the mortgage term and make your last payment. So, what happens now? A process breaks the lender’s hold on your property and grants you legal ownership. 

You are still responsible for taxes and insurance, but you no longer have to make mortgage payments. This guide provides advice on what happens when you pay off your mortgage.

What Happens When You Pay Off Your Mortgage?

Here’s what to expect after you’ve made your last mortgage payment.

Expect to Receive Mortgage Release Documents

Mortgage release documents confirm that the mortgage has been paid in full, so you no longer have any payment responsibilities and the lender has no claim on your home.

Loan Payoff Letter

A loan payoff letter details your principal balance and any accrued interest. If there are any owed fees, these will also appear on the loan payoff letter. 

Expect a due date on the loan payoff letter. You must pay the loan by this date to avoid any further interest charges. Payment instructions will show how to make the final payment. 

Canceled Promissory Note

The canceled promissory note confirms that you have fulfilled your mortgage obligations. It is proof that you’ve paid off your mortgage. Keep the canceled promissory note with your other important property documents. 

Deed Of Reconveyance

Ownership of your home remains with the lender until you fully pay the mortgage. This is because the property serves as collateral for the outstanding loan amount. Once you pay off your mortgage, the lender must transfer the property into your name. The Deed of Reconveyance transfers ownership. You are now the property’s legal titleholder. Make sure to request the ownership transfer. You will need it when you sell your home. 

Property Deed

A property deed is a legal document transferring property ownership from the seller to the buyer. It proves legal ownership of the property. The property deed is filed with local government offices as a public record accessible to the public. Property deeds ensure smooth property transfers and protect both parties in a property sale. When you pay off your mortgage, the lender’s lien is removed from the property deed.

Certificate Of Satisfaction

The lender usually issues a Certificate of Satisfaction when you have paid your mortgage in full. This is an official acknowledgment of the settled debt, and it releases any liens the lender had on your property. 

Escrow Funds

The escrow account holds funds to cover property taxes and property insurance. The lender often pays these costs on your behalf. Any excess amounts left will accumulate in the account. Additional amounts may exist if insurance premiums and property taxes are lower than expected or if you’ve funded the account in advance. Your lender must refund any excess funds in the escrow account within 20 working days of your final mortgage payment. 

Be Responsible for Your Insurance and Property Taxes

Now that you’re the legal owner of your property, you’re responsible for making the following payments. 

Home Insurance

As a homeowner, you are responsible for paying the monthly premiums. The insurance coverage will lapse if you fail to pay on time, leaving you vulnerable to financial loss. Your insurance will require that you maintain your property to prevent consequential damage. 

Ensure you understand what your homeowner's insurance covers and any exclusions that may apply. If necessary, find an alternative insurance provider. 

Property Taxes

Property owners must pay annual or biannual taxes to their local government authorities. Property taxes are the primary source of income and are used to provide shared amenities like roads, parks, clinics and schools. You should receive a bill from your local tax authority. Avoid interest and penalties by paying the outstanding amount on time. 

The amount you pay is based on the assessed value of your property, which is assessed from time to time. If you believe the assessed property value is incorrect, you can appeal it. 

Homeowners Association Fees 

Homeowners Association (HOA) fees cover maintenance and essential services for shared facilities. Pay promptly to ensure the smooth operation of the HOA and avoid late penalties and fees. You may request a copy of the HOA budget to view the fee allocation. 

Monitor Your Credit Regularly

Paying off your mortgage can affect your credit score. Removing the mortgage from your credit mix can have the surprising effect of reducing your credit score. Don’t worry, the drop in credit score is usually temporary. Your credit score will still reflect your history of regular mortgage payments. 

Tips on How to Best Use Your Extra Money

Paying off your mortgage should leave you with substantially more money each month. Use it well and you’ll reap the benefits. 

Pay Off Other Debts 

First, eliminate high-interest debt, such as credit cards and personal loans. This will save you interest and free up more cash.

Build or Expand Your Emergency Fund 

Unplanned events can happen anytime, disrupting your plans and requiring finance. Plan to build an emergency fund containing three to six months of salary as a cushion if you become ill or lose your job. 

Contribute More to Retirement Accounts 

Many people’s retirement funding falls short of what they need to retire comfortably. Start saving now and make compound interest work for you. Putting extra money into your retirement annuity could help you retire comfortably when the time comes. 

Invest in a Diversified Portfolio

A diversified stock portfolio will help you build financial security. Use the proceeds as retirement funding, an education fund for your children or any longer-term objective. Diversified financial assets enable the best mix of investments to mitigate risk and maximize profits. A well-chosen broker can help you make the best choices. 

Save For Major Future Expenses

When the time comes to replace your car, upgrade your home, or make major repairs and maintenance, it’s good to have a fund from which to draw. It will prevent you from taking expensive financing options and save you interest. 

How to Pay Off Your Mortgage Faster

Paying your mortgage off early is a liberating experience and not that difficult to achieve. You could choose one of several strategies:

• Making extra payments: Put any extra money, like bonuses, tax refunds and gifts, toward your mortgage. Even a small additional payment can make a big difference over time. 
• Apply pay increases to your bond: increase your monthly payments when you receive a pay rise. 
• Rent out unused space: If you have a shed, an extra room or an unused garage, consider renting it out and raising your monthly mortgage payments. 

Every extra amount paid into your mortgage will save interest over the mortgage term. You could save a substantial sum in this way. 

Compare the Best Mortgage Lenders from Benzinga’s Top Providers

If you’re looking for a mortgage lender, you should find one to match your needs on the chart below: 

Congratulations! You Own Your Home Free and Clear

Paying off your mortgage is a significant accomplishment. Owning your property outright does not free you from the responsibility or expense of paying homeowners insurance or property tax, but you may have substantially more money left over each month. Use it to build an investment portfolio, save for retirement or spend a little on a dream trip. 

Frequently Asked Questions