You've paid off your mortgage loan. Now what?
It's OK to celebrate when you send off that final check to your mortgage lender. But paying off your mortgage loan doesn't end your financial duties as a homeowner.
You'll still have to pay taxes and homeowners insurance. You'll need to make sure that your county knows that you are now the official owner, and, perhaps most important of all, you'll have to figure out what to do with those dollars that you'll no longer be spending on your mortgage each month.
Here are eight things you need to do after sending that final mortgage payment:
No.1: Satisfaction of mortgage
You should receive a "satisfaction of mortgage" statement from your lender after you make your last payment, says Jack Guttentag, professor emeritus at the Wharton School of the University of Pennsylvania and owner of TheMortgageProfessor.com. Your lender should also send a copy of your mortgage note. This, Guttentag says, is the only legal proof that you need that you've paid off your loan. Guttentag recommends that you give your lender at least three weeks to send this information before calling to request the documents.
No. 2: File papers
If your lender won't file the "satisfaction of mortgage" statement on your behalf, you'll have to file it with your county's register of deeds office, or, as it's known in some counties, your recorder of deeds office. Most lenders will file this themselves, but some won't. Call your lender to ask.
No. 3: If paying off early...
You might elect to pay off your mortgage loan early. This, though, can be more complicated than you'd think. Different lenders have different rules for early payoffs.
Some lenders require that the last (early) payment be in the form of a cashier's check, says Guttentag. Others might request a fee to prepare an official payoff statement. Still, others might request that you send your last payment to a different office.
Call your lender to learn the rules before sending in enough money to pay off your loan early.
No. 4: Automatic deductions
If you set up automatic mortgage payments to be deducted from your checking account, make sure your bank has turned this off once you're paid off.
No. 5: Insurance and taxes
If you had an escrow arrangement with your lender, you paid extra each month so your mortgage company paid your property taxes and homeowners insurance on your behalf. Now that you've paid off your mortgage, you will be responsible for paying these bills on your own. Contact your insurance company and taxing authority to let them know, so they can begin sending these bills directly to you.
To help save enough to cover these bills, call your insurance company and taxing authority to ask how much you'll need to cover them, says Dan Green, a loan officer with Waterstone Mortgage Corporation in Cincinnati. "Then budget for it."
Green recommends keeping an extra 10 percent of what you'll need to cover these bills in liquid funds in case of a sudden increase. "Tax and insurance bills often unexpectedly rise," he says.
No. 6: Escrow balance
Green also recommends that you be on the lookout for a check from your lender. If you paid into an escrow account that your lender used to pay your taxes and insurance, you might have a balance in that account after you've paid off your loan. Your lender will usually send a check in three weeks. If one doesn't arrive, don't be shy about calling your lender.
No. 7: Coverage changes
Green recommends that you ask your insurance provider about possible coverage changes now that you've paid off your loan. "Your insurer might be able to recommend a coverage change that saves you money," he says.
No. 8: Financial planning
Deciding what to do with your money might be the most important consideration after you pay off your mortgage. Todd Tresidder, a financial coach and author based in Reno, Nev., and founder of FinancialMentor.com, recommends that you immediately start depositing your former mortgage payments into an investment account to help make your retirement years better ones.
"It's more about what not to do after paying off your mortgage than it is about what to do," says Tresidder. "The trick is to not increase your spending because you suddenly feel that you're flush with cash. Once you start spending that money you'll never learn to save it."
Dan Rafter is a freelance writer with more than 20 years experience covering real estate and mortgage issues. He's written for the Chicago Tribune, Washington Post, Business 2.0 Magazine, Consumers Digest and dozens of trade magazines.