What happens when you pay off your mortgage?

Home Forums Mortgage What happens when you pay off your mortgage?

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    Here’s what happens when you pay your mortgage:

    • Mortgage release documents: Your loan servicer sends you mortgage release documents that declare that you have paid the loan in full and that the lender doesn’t have a lien on your house. Your promissory note is also canceled.  
    • Insurance and taxes: The escrow account which was used to pay your property taxes and homeowners’ insurance is closed. If there is any remaining amount, it is returned to you within 20 days of closing. You will now be paying the insurance yourself so you need to notify the insurance company that the loan has been paid in full and they now need to bill you directly. You can also choose a different insurance policy or company if you don’t want to continue with the same. You will also be responsible for paying your own taxes, so you’ll need to inform the local authorities to bill you directly henceforth. 
    • HOA fees: You’ll now pay any homeowners’ association (HOA) fees (if you live in a townhouse or condo) directly as well. Make sure to inform the property manager or the person in charge of the HOA of the new development. 
    • Plan on investing the extra funds: Now that the mortgage is paid, you can use the extra funds for other purposes — like increasing your retirement savings, paying off other remaining debt, increasing other kinds of investments, and increasing your emergency funds. 
    • Credit score: Once your mortgage is paid off, your credit score drops by a few points temporarily because it reduces your credit mix. Monitor your credit score to check if the mortgage closure is accurately reflected.
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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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