real estate

What You Must Know About Paying Off Your Mortgage

Your last mortgage payment is in sight. Now what?

Owning a home free and clear is an impressive financial milestone. You’ll want to take steps to make sure your final payment is credited quickly and the mortgage lien is cleared from your title so you can sell your home when you want without extra hassles. Plus, your homeowners insurance and property taxes will no longer be paid from an escrow account, so the bills will be your responsibility.

About 30 to 60 days before you expect to make your last payment, ask for a payoff quote from your lender or loan servicer (look for contact information on your monthly statement). Consumers often miss this opportunity to simplify the payoff process, says Bill Pinkerton, a senior vice president at Wells Fargo Home Mortgage. Because you pay your mortgage in arrears, you could owe more than you think: This month’s payment covers last month’s principal and interest, and the tab for interest grows daily while the loan remains open. Or you could owe less than you expect if you occasionally prepaid principal.

The loan servicer generally must deliver a payoff quote within seven days of your request. Your servicer will set an expiration date for the quote, after which interest will again accrue. In addition to the final month’s principal and interest, you’ll pay a fee (usually $25 to $50) to file a request with your county’s real estate recording office to release the mortgage lien from your title. You could also owe a prepayment penalty if required by your loan terms, plus any unpaid late fees. For the final payment, your servicer may require a wire transfer from your bank account (which will cost about $15 to $20) or a cashier’s check ($7 to $10).

In most states, the servicer must file a release request with the county recorder within 30 days of payoff. Servicers sometimes fail to meet the deadline, says Paula E. Meyer, a real estate lawyer in Orange County, Calif. In such cases, she sends a demand letter to the servicer by certified mail, which, depending on the state, may trigger a penalty against the servicer.

Do-it-yourself escrow payments. If the servicer paid your bills for property taxes and homeowners, flood and windstorm insurance from an escrow account, it must send you a refund check for any remaining balance within 20 days of payoff and close the account. Call your insurers and tax department to make sure you’ll receive the bills in the future, and confirm the due dates. Consider setting up automatic payments from your checking or credit card account.

Even if you’ve received a confirmation letter from your servicer and your account shows a zero balance, you won’t hold clear title to your home until the county has recorded the release request, which could take a week to a couple of months. It’s a done deal when you receive a copy of the release showing the recording date and the county’s identifying document number. Either the loan servicer or the county will mail it, or you may have to pick it up from the recorder’s office.

Your insurance policy or policies list your loan servicer as an “additional insured” to protect its interest in your home; ask the insurers to remove the servicer’s name. Before they do, they’ll probably ask you for copies of the recorded release request and your deed.

When you receive the original, now-canceled mortgage note, file it—or frame it. And give yourself a well-deserved pat on the back.

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