I’m happy to say that I will soon be paying off my mortgage! I’m nervous about a few things and hoping you can help.
I understand I will no longer be able to get the tax benefits, but what other ramifications might there be? People have warned me that I need to advise my insurance company that I am paying off the loan, but how do I pay the property taxes that were escrowed?
I wonder if other people would appreciate knowing the steps to take when their mortgage is finally paid off. Thanks for all the knowledge you’ve shared over the years.
You’re right. It’s a great thing to be done with paying your mortgage, particularly if it has taken you 30 years to get to this point. One thing you mentioned was that you’ll miss the tax benefits you received by having a mortgage. The reality is that you get the most tax benefit in the early years of the loan. Remember, in the early years of a loan that is amortized over time, you pay mostly interest and in the later years, you’re paying mostly principal.
Since only mortgage interest payments are deductible on your federal income tax return, it’s unlikely that you’ve seen much benefit from your loan payments for quite a number of years. In any case, it would be a declining benefit because each year you pay off a portion of the equity and then pay less in interest the following year.
Also, the benefit you get from deducting interest payments depends on how much you are able to deduct, the amount of money you make and other factors. Having said that, any benefit you can get on your federal income taxes may be good for your bottom line.
Once you’ve paid off your loan, you need to tell your insurance carrier that you no longer have a lender on the home. If you have a casualty (like a fire or a tornado hits your house) and your lender is still named as a mortgagee on your homeowners policy, you may have to deal with that old lender to get your money. It’s hard enough dealing with insurance companies to then have to deal with a lender that may or may not have a record of your old mortgage.
Keep in mind that insurance companies may cut a check payable to you and your lender, if your lender is named as a mortgagee on your insurance. Once you pay off your loan, you’re best off not having that lender named on your insurance.
As far as paying your real estate taxes, you should have been receiving copies of your real estate tax bills over the years you had your loan. If you received those bills in the past, you relied on your lender to make the payment. Now you have to pay the bill as you receive it in the same way you pay all your other bills. If for some reason you’re not receiving paper tax bills from your local taxing body, you need to make sure you contact them to have them send you paper bills in the future.
Once your loan is paid in full, the lender should send any cash left over in your escrow account back to you. And don’t forget to pay your homeowner’s insurance premiums.
Lastly, don’t forget to get back the original promissory note you signed years ago. The lender should return that to you and it should be stamped canceled. The lender should also send you the trust deed or canceled mortgage. Finally, the lender should record a document with your local recorder of deeds or other office in charge of property records indicating that the lender releases any lien interest they have in your home. In case the lender received a trust deed for security, they should file a release of the trust deed.
Good luck and thanks for your question.
Ilyce Glink is the creator of an 18-part Webinar+ebook series called “The Intentional Investor: How to be wildly successful in real estate,” as well as the author of many books on real estate. She also hosts the “Real Estate Minute,” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her Web site, ThinkGlink.com.