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 off their mortgage. With typical 30-year mortgages, it can take a long time to reach that goal. But what happens when you pay off your mortgage? There are, in fact, a number of steps to making your final mortgage payment and figuring out what to do next. Consider working with a financial advisor as you work toward your financial goals and overall independence.

How to pay off a mortgage

When you’re ready to pay off your mortgage, follow these steps to reach your goal. Note that due to accrued interest, the balance on your mortgage statement is not 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 payment amount by a certain date. This amount includes accrued interest up to a certain date. Pay the amount due by the due date or the end of the payment statement to eliminate your mortgage. Any additional 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 over when your mortgage is paid off. Request a refund in an escrow account 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 steps the mortgage company and you must take to make this milestone official.

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

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

  • Send a mortgage exemption letter to your county: Your mortgage company should send all the required documents to your county clerk’s office notifying them that your home is no longer foreclosed on. If they haven’t done so within 90 days, bring your mortgage documents to the clerk so they can update their records.

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

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

Managing Your Home’s Fixed Expenses

What happens when you pay off your mortgage?

What happens when you pay off your mortgage?

Even though your mortgage is paid off, that doesn’t mean you no longer have housing expenses. It’s a good idea to set aside savings accounts for each of these current expenses. Property taxes are usually a portion of your home’s value and are paid near the end of the year. Assuming your home continues to increase in value, this bill will also increase each year. This bill varies depending on the type of home you own, the coverages and deductibles you have chosen, recent claims and other factors. While you can pay monthly, you’ll often save money by paying it once a year.

Some homes are located in communities with homeowner associations that charge dues. These fees are often monthly or quarterly. It is recommended that you set aside 1% of your home’s value for repairs and maintenance. Even if you don’t spend that much each year, you’ll need the extra for bigger projects. These could include things like replacing your roof or painting your house.

Styles and tastes vary 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’ll suddenly find yourself with more money each month. Depending on your financial plan, some or all of these steps may be helpful:

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

  • 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 number is much lower now that you’ve eliminated your mortgage payment.

  • Maximize your retirement plans: If you don’t already, setting aside extra money to max out your company retirement plan and traditional or Roth IRA is a great idea. This is particularly true for investors aged 50 and over who have access to ‘catch-up’ provisions.

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

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

  • Contribute to college savings accounts: If you have children or grandchildren, helping them with their college expenses may be a goal of yours. Contributing to a Coverdale savings account or 529 plan is a good way to grow that money 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 speed up 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 makes it so that you pay one extra payment each year, which cuts about four years off the standard 30-year mortgage.

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

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

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

Conclusion

What happens when you pay off your mortgage?

What happens when you pay off your mortgage?

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

Tips for paying off your mortgage

  • Financial advisors can recommend investments that lower taxes and earn higher returns so you have more money to pay off 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 advisors at no cost to decide who is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Are you well aware of what the current mortgage interest 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 avoid buying a home that is beyond your budget. It’s easy to get carried away by the excitement of buying a home and get too spread out. Use our calculator to help you determine how much home you can afford based on your finances.

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