What Happens When You Pay Off Your Mortgage? | SoFi (2024)

Is a paid-off mortgage in sight? Hooray for you! Greater monthly cash flow and less stress are coming your way. But hold up: Is hurrying to pay off a mortgage always the smartest move, and is refinancing something to consider?

Although paying off your mortgage is certainly an achievement, there are some things you need to do before you complete the process, if payoff is the path you’ve chosen.

Pros and Cons of Paying Off Your Mortgage

Paying off your mortgage is a fantastic milestone to reach, but it’s not without trade-offs. Here are a few considerations to help you make the best decision for your situation.

What Happens When You Pay Off Your Mortgage?

To get the amount you need to pay off your mortgage, the first thing you need to do is request a mortgage payoff letter. If you pay the amount on your last statement, you won’t have the right amount. A mortgage payoff letter will include the appropriate fees and the amount of interest through the day you’re planning to pay the loan off.

The payoff letter is only good for a set amount of time. You’ll have instructions on where to send the payment.

Once you’ve sent the payoff amount, your mortgage company is responsible for sending you and the county recorder documentation to release the mortgage and lien on your home.

What Documents Do You Get After Paying Off a Mortgage?

After paying off your mortgage, you should receive (or have access to) documents proving you paid off the mortgage and no longer have a lien attached to your home. These include:

• Satisfaction or release of mortgage. This document will be filed with the county recorder (or other applicable recording agency). It states that the mortgage has been satisfied and the lien released.

• A canceled promissory note. When you closed on your home, one of the documents you signed was called a promissory note. Now that the mortgage has been satisfied, you may receive this document back with a “canceled” or “paid in full,” though it’s also possible you may have to call and request the document.

• A statement on the paid-off loan balance. Your lender should send you a statement showing that your loan has been paid in full.

What Should You Do After Paying Off Your Mortgage?

After you pay off your mortgage, you’ll need to take care of a few housekeeping items.

• Close your escrow account. Since you’re no longer sending a mortgage payment to a mortgage servicer, you’ll need to take care of the items in your escrow account, primarily your taxes and homeowners insurance.

• Contact your county recorder’s office to double-check that the mortgage satisfaction paperwork has been filed. Once that has been filed, you will have a clear title on the property.

• Make plans for the extra money. Whether you want to make a bigger push in your retirement account, enlarge your emergency fund, or pay off other debts, you now have more cash to do it with. If you don’t make plans for the extra money, it might just evaporate.

Want to know more? You can find more online content at our mortgage help center.

Is Prepaying a Good Idea?

Generally, paying off your mortgage early is a great idea. It reduces the principal, which in turn reduces the amount you’ll pay in interest over the life of your loan. Still, there are reasons that some homeowners consider not paying their mortgage off early.

Most lenders do not charge a prepayment penalty, but home loans signed before Jan. 10, 2014, may include one, and nonconforming mortgage loans signed after that date may have a prepayment penalty that applies within the first three years of repayment. (The different types of mortgage loans include conforming and nonconforming conventional mortgages.)

The best way to find out if prepayment is subject to a penalty is to call your mortgage servicer. The terms of your mortgage paperwork should also outline whether or not you have a prepayment penalty.

Should You Refinance Instead?

Another option you may consider is refinancing your mortgage. There are several reasons you may want to refinance instead of paying off your mortgage.

Lower monthly payment. Getting a lower rate or different loan term may lower your monthly payment. Be sure to check out current rates and this calculator for mortgages to find out what a possible new payment would be.

Shorter mortgage term. Refinancing a 30-year mortgage to, say, a 15-year mortgage can keep you close to paying off your mortgage while also providing financial flexibility.

Spare cash. Whatever your need is — home renovations, college funding, paying off higher-interest debt — a cash-out refinance might be an option.

The Takeaway

What happens when you pay off your mortgage? After doing a jig in the living room, you’ll need to take care of a few housekeeping tasks and make plans for the extra money.

Would a refinance to a shorter term make more sense, or pulling cash out with a cash-out refi?

Whatever you decide, SoFi stands ready to help. Whether you want to apply for a mortgage or looking to refinance, our experts can answer all your mortgage questions.

FAQ

Is paying off your mortgage a good idea?

The answer depends on an individual’s situation. If you have the money and you’d love to shed that monthly obligation for good, paying off a mortgage is a good idea.

If you’re worried about funding your retirement or losing opportunities to invest, paying off your mortgage may not be a good idea for you.

What do you do after you pay off your mortgage?

Ensure that you have received your canceled promissory note, and update your property tax and insurance billers on where to bill you. Since you no longer will have a mortgage servicing company, you must pay your insurance (if you choose to keep it) and property taxes yourself.

Is it better to pay off a mortgage before you retire?

Paying off a mortgage will give you more to work with in retirement since you’re not paying a mortgage, of course. But if your retirement accounts need a boost, most financial experts contend that allocating money there is a better idea than paying off your mortgage.

Paying off a mortgage when you have low cash reserves can also put you at risk.

Does paying off your mortgage early affect your credit score?

Surprisingly, paying off your mortgage early won’t affect your credit score much. Your credit score has already taken into account the years of full, on-time payments you made each month.

Photo credit: iStock/katleho Seisa
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