Not sure what to do after you pay off your mortgage?
There are some important hoops you have to jump through to make this momentous occasion official. After all that hard work in paying your mortgage, let’s make sure you cross all your “T’s” and dot your “I’s”. The mortgage payoff procedure can be confusing!
I went through all of these steps a couple of years ago when our family paid off our mortgage early. It was surprising to me how many steps were required to simply pay off a freakin' debt. Nevertheless, we followed the “rules” so we never had to do it again!
Here are 10 steps that I went through for our mortgage payoff procedure.
1. Request a Mortgage Payoff Statement
I thought we could just send in the last mortgage payment and we’d be all set. Nope! Evidently, you need to call your mortgage company and verbally request a “mortgage payoff statement”.
Make this a fun moment for yourself! This is the first time you get to say to someone from your mortgage company, “We’d like to pay off our mortgage today!”
Don’t be surprised if the representative isn’t as enthusiastic as you are about it. Our rep was helpful and congratulated us on the big moment in our lives, but I could tell she wasn’t doing a happy dance like I was.
During your phone conversation, you’ll choose a “Pay Off Good Through Date”. This essentially means that you’ll need to send in your final payment prior to this date to not incur further interest charges. For reference, we made this phone call at the beginning of the month and set our “Pay Off Good Through Date” for the end of the month.
2. Pay Mortgage Payoff Fees
Depending on your state, there may be extra fees included in paying off your mortgage. For us, we had to pay a $30 “statement fee” and a $14 “recording fee”.
One last poke in the side from the mortgage company before they grant your freedom!
3. Obtain a Certified Check or Request a Wire Transfer
Mortgage companies may not accept a regular online payment or a personal check for the final payment. For us, we had the choice of either a certified check or a wire transfer.
We went to our local bank and requested a wire transfer. It hit our account almost immediately. When we got home from the bank, I checked online and it had a lovely $0 balance.
4. Inquire About Your Escrow Balance
Depending on when you pay off the loan, you will more than likely have an escrow balance containing funds for future payments to your homeowner’s insurance and property taxes.
Ask your mortgage company about your escrow current balance and how much you’ll be receiving back. For us, we received a check for around $2,000 two weeks after we paid off the loan.
Don’t go spending this money now! You’re going to need it to pay these bills manually now.
5. Contact Your Homeowner’s Insurance Provider
Now that you don’t have an escrow account anymore, you’ll need to pay your homeowner’s insurance going forward. For us, this was an opportunity for us to maximize our travel rewards earnings by putting our annual insurance payment on our credit card instead of paying through escrow.
Reach out to your homeowner’s insurance provider and let them know that you’ve paid off your mortgage and you’ll be making the payments going forward.
Ask them about automatic billing options so that you don’t accidentally miss this important payment each year.
6. Contact Your City or Township Office
Just like the homeowner’s insurance, your property taxes were paid through escrow as well. Now, you’re in charge of paying them.
Touch base with your city offices and let them know that you’ve paid off your mortgage and you will now be making your property tax payments.
Our township had a convenient online payment system that was pretty impressive for a government website!
7. Cancel Your Automatic Mortgage Payment
If you don’t cancel your automatic mortgage payment for the upcoming month, you may accidentally pay more than you intended. Sign in to your online account and ensure you’re all set.
8. Adjust Your Budget Accordingly
Tracking your spending and saving is even more important now that you're mortgage free!
Plan a sinking fund for your homeowner’s insurance and your property taxes in your monthly budget. You don’t want these big-ticket items to surprise you down the road.
This is also a time to make some big decisions about this newfound money. What do you want to do with all of this extra cash each month?!
Since my wife and I were making extra principal payments, we had an extra $2,300 to spend in our first month of mortgage freedom. It was a bit overwhelming for us!
We decided to allocate our extra money in the following ways:
- Save up for our first rental property
- Increase our charitable giving from 1% to 5% of our income
- Open and fund a Health Savings Account (HSA)
- Vacation more!
9. Receive an Official Letter from your (former) Mortgage Provider
Around 30 days after you make your final payment, you’ll receive an official letter from the mortgage company stating that your loan is paid in full.
You’ll want to keep this one for your records. Or you could frame it like we did.
Frame or no frame, make sure you save it just in case.
10. Obtain the Mortgage Release Documents
Your mortgage company will produce “mortgage release documents” that prove the mortgage is no more. Be sure to speak with your lender to understand when these documents will be sent to your County Clerk for processing.
You should also receive a copy of these documents that you’ll keep for your records. Depending on your specific situation, you may need to go to the County Clerk to get a copy yourself.
After all of these steps, make sure you celebrate this HUGE moment with your loved ones. Some people live with mortgages for their entire lives … not you. You’re mortgage free!
Here's how our crazy family celebrated:
Have you recently paid off your mortgage?
Please tell me about it in the comments below!