How to Pay-Off a Mortgage
This is a chronological summary of the practical steps we recently followed to pay-off the mortgage on our vacation home. Hopefully you will have the opportunuty to reach this milestone in your financial plan. If so, perhaps what we did will help you through the process when the time comes.
Set a Deadline
We evaluated our existing cash savings positions and anticipated free cash flow that we could designate for mortgage payoff. Using that information, we estimated and set a goal of December 2008 for the actual payoff. I think it is important that you give yourself a deadline but one that is realistically attainable. If it is too aggressive, you may give up if you start to fall behind the schedule you have set.
Accumulate the Payoff Cash
After we set a deadline, we opened an online savings account at GMAC bank. The only purpose for this account was to accumulate the money we intended to use for the final mortgage payment. We ended up opening two more savings accounts (one at Capital One) so that we could maximize FDIC protection. Then each month we made electronic transfers of most of our free cash to these savings accounts. This helped us to monitor and remind us of our progress toward our goal.
Determine the Payoff Amount
As our deadline approached, I selected a date that we would actually deliver the payoff cash to the mortgage company. I then contacted the mortgage company and asked it to fax me the payoff amount and payoff instructions for that date. Three pages of detailed instructions were sent.
The date I selected was the day after our regular monthly mortgage payment is debited from our bank account. You should check with your mortgage company and ask how this last payment will affect your payoff balance. In our case, we will end up with an overpayment which the mortgage company will refund to us, along with the money that was being held in escrow for payment of insurance and property taxes.
Deliver the Payoff Funds
The two safest ways of delivering the final payment are by sending a cashier’s check using an overnight delivery service or by wiring the funds directly from your account to the mortgage account. I recommend wiring because it is the most secure and almost instantaneous. There won’t be any question as to whether the funds arrived on time.
If you use an overnight delivery service (such as FedEx), I would request signature proof of delivery as well as email tracking. Also, be certain that the delivery is scheduled to arrive well before the time deadline set in the payoff instructions. Otherwise, you may end up paying another day of interest.
Confirm Receipt of the Funds
If you wire funds, you can call that same day and confirm with the mortgage company that the funds were received and credited against the mortgage balance. If you have online access to your mortgage account as we did, you should also be able to monitor it that way as well. There may be a delay in updating the online records so don’t panic if the change is not reflected until the next day.
If you send a cashier’s check, your initial monitoring will be to track the delivery with the courier. Then at some point you should be able to call the mortgage servicing office and confirm that the funds were deposited.
Also, a letter will usually be sent to you acknowledging the payoff (and congratulating you).
Confirm Satisfaction of the Mortgage
Other than sending the money, the most important step in paying off a mortgage is to make sure that a “Satisfaction of Mortgage” is recorded in the clerk or register of deeds office in the county where the real estate is located. This is a legal document that informs the public (and future purchasers) that the mortgage lien has been satisfied and discharged, and that you now own the property free and clear.
The mortgage company is normally required to prepare this document and may then send it directly to the county office. However, it may instead send the document directly to you to have it recorded. If that is the case, make sure you do it and do it promptly. If you take it to the clerk’s office, they will know what to do with it. There may be a recording fee to pay.
The payoff instructions should tell you who is responsible for recording the “Satisfaction of Mortgage” document.
The final part of this step will be to obtain a copy of the “Satisfaction of Mortgage” document after it is recorded. You should contact the county offices and ask if one will be sent automatically or if you need to request a copy. When you receive the recorded document, look it over carefully to be sure that everything is accurate and complete.
Arrange for Payment of Taxes and Insurance
Now that there is no mortgage company involved with your home, the responsibility for paying property taxes and homeowner’s insurance is all yours. Therefore, you should contact the county tax assessor’s office and arrange for all tax bills and notices to be sent directly to you. You should also confirm the due date for the next tax payment and put that in your budget planning for the next year.
Your homeowner’s insurance company should also be notified of the change. It may ask you to supply a copy of the Satisfaction of Mortgage document so that it can confirm that the mortgage company can safely be removed as a lienholder beneficiary on the policy.
Final Step – Celebrate!
At some point you should throw yourself a little mortgage payoff celebration, if only to inspire your children to adopt a similar goal. Some people even make a production out of burning the mortgage documents themselves. I wouldn’t burn all of the copies. You might need them one day to help you establish your cost basis in the home if you decide to sell it.
Good luck and let me know when it happens!
Image credit: Sanja Gjenero
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