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The Best Steps to Take After Paying Off Your Mortgage

Sending in the last payment for your mortgage is a major financial milestone that rivals the home purchase.

For a large number of people, a mortgage loan is a 30-year commitment. Paying of the mortgage is a big accomplishment.

That said:

There's paperwork to be wary of and financial considerations to take into account.

Here’s what to do before and after making a final mortgage payment.

What You Should Know Before Paying Off a Mortgage

If you’ve paid off other debt like a credit card, you probably signed into your online account, made your final payment, and that was it. 

Paying off a mortgage, however, is a slightly different process -- more so if you’re submitting a lump sum as your final payment.

In this situation, the first thing you’ll need to do is contact your mortgage company.

Notify them of your intent to pay off the mortgage balance in full, and then request a mortgage payoff statement

This is necessary because your mortgage company charges interest up until the payoff date. So the amount you “think” you owe to pay off the balance is probably less than the actual payoff amount. 

If you’re paying off your mortgage within the next two weeks, the mortgage payoff statement will have the amount needed to close your account.

Keep in mind:

If you submit a lump sum to pay off the mortgage, you might be unable to make this payment online. Your mortgage company might require a certified check or a wire transfer.

This varies from lender-to-lender.

What to Do After Paying Off Your Mortgage?

So, you’ve finally done it—you’ve paid off your mortgage loan.

Whether it took 30 years, 20 years, 15 years, or sooner, here’s what you need to do before riding off into the sunset.

1. Get a Satisfaction of Mortgage Statement

After making your final payment, you’re likely excited to sign into your online account and confirm a $0 balance. 

But seeing "$0" as your principal balance isn’t the final step in the process.

You need some type of proof—from your mortgage lender—that you’ve satisfied the debt. This signifies that you officially own the property outright. 

Typically, your mortgage lender will mail a Satisfaction of Mortgage Statement within about three to four weeks.

If you don’t receive this statement within a month, call your mortgage company to request one.

2. File the Satisfaction of Mortgage Statement With your county clerk

It’s important that you receive your Satisfaction of Mortgage Statement because you must file this document with your c\ounty clerk’s Office. 

This office maintains public records, which includes mortgage deeds.

Once the city or county has this document, it’ll update local records to show that you own the property mortgage-free.

Now:

Sometimes, mortgage lenders will file this document on your behalf.

But, usually, it’s your responsibility to file this paperwork with your local office. Contact your lender to inquire about their procedure.

3. Cancel automatic mortgage payments

Setting up automatic mortgage payments is convenient and a great way to put your finances on autopilot.

You don’t have to worry about forgetting a payment or paying late. This can prevent late fees and negative marks on your credit report. 

Now that you’ve paid off your mortgage loan, don’t forget to cancel your automatic mortgage payments.

If you don’t cancel these payments, money might continue to come out of your bank account every month. 

Of course, your lender will refund the money once they’re notified of the error.

Still, it’s an avoidable unnecessary hassle. So stop these drafts as soon as you make your final payment. 

4. Notify your homeowner insurance provider

In all likelihood, you paid your homeowner’s insurance through an escrow account.

You included these premiums with your monthly payment, and they went into this account managed by your mortgage servicer, and then paid on your behalf.

Be mindful that paying off your mortgage loan closes your escrow account.

But despite getting rid of the balance, you’ll want to maintain your homeowner’s insurance. 

This type of insurance isn’t required once you own your property outright. It is, however, highly recommended. It provides a measure of financial protection from property loss or damage.

To maintain coverage, contact your homeowner insurance provider and let them know that you’ve paid off the mortgage balance.

You’ll start paying the monthly premiums on your own. In which case your provider can send a monthly invoice, or you can set up automatic payments from your bank account.

5. Contact your local taxing authority

In most cases, your property taxes were also paid through an escrow account. With this account closed, you’re responsible for paying these taxes yourself, too. 

Notify your local taxing authority and let them know that you’ve paid off the mortgage loan. You’ll receive a bill for property taxes, which you can pay monthly, quarterly, or annually.

6. Inquire about your escrow balance

After paying off the mortgage, you might have remaining funds in your escrow account. Your mortgage lender will refund any remaining balance in about a month. 

If you don’t receive a check or payment, contact your mortgage company to inquire about the status of your funds.

Better yet:

Use the remaining balance to prepay your homeowner’s insurance and/or property taxes.

7. Check your credit report

Once you receive your mortgage satisfaction statement and you’ve filed the necessary documents with your local government, get a copy of your credit report

Confirm that your credit report shows a satisfied mortgage debt.

It typically takes about 30 to 45 days for credit reports to reflect a paid off debt.

What to Do With Extra Cash Flow

With your mortgage paid off, the next question is what to do with the extra money? 

For some, a mortgage payment was their single most expensive monthly bill. So with this balance gone, there’s freedom to achieve other financial goals.

For example:

1. Pay off other debt

A house payment can make it difficult to pay off other balances. This includes credit card debt, student loans, car loans, and personal loans.

With your mortgage gone, allocate extra money toward debt repayment. 

This will free up even more money for hitting your goals. Plus, getting rid of credit card debt helps build a stronger personal score. Too much revolving debt can hurt your credit.

2. Boost your retirement fund

Getting rid of your mortgage loan also creates an opportunity to strengthen your retirement fund. 

With the payment gone, you can increase contributions to your 401(k). Or use the money to open an individual retirement account (IRA). 

This is also an opportunity to max out your 401(K) contributions, especially if you’re a little behind or haven’t saved anything yet.

If you start saving at age 40 and max out your contributions, assuming a 7 percent annual return, you’ll accumulate about $1.2 million by age 65.

3. Build your emergency fund

Paying off a mortgage loan also opens the door to a bigger emergency fund.

If you don’t have anything liquid, use some of the cash to gradually build a 6- to 12-month cash reserve.

This way, you don’t have to rely on a credit card during an emergency.

4. Invest

This is also a perfect time to look into investment opportunities.

Options include the stock market, mutual funds, bonds, certificate of deposits, and even real estate.

Speak with a financial advisor for tips and recommendations.

5. Start a college fund

If you have a strong emergency fund, a solid retirement savings plan, and you’ve paid off other debt, maybe use any leftover cash to start a college fund for your children.

You can set up an Education IRA, open a 529 plan, or set up a custodial account which your child can use for more than just college expenses.

6. Start a business

Another option is using the money to start a business. This business might replace your full-time job, or at the very least, supplement your full-time income. 

Money earned can also go toward strengthening your retirement account, building a college fund, or creating new experiences for your family.

Final Word

Paying off a mortgage loan is a huge accomplishment, but it’s important that you know what to do after getting rid of the balance. 

With less money going toward bills, you can hit other financial goals, and you might be able to work less.

The most important task:

Notify the right agencies and authorities.

This includes your local government and your home insurance provider.

This ensures getting an updated deed and keeping your property protected from losses and damages.