Once your mortgage is paid off, you'll need to update your homeowners insurance policy. You should remove your mortgage company from your policy by eliminating the mortgagee clause, which entitles them to reimbursement if the home is damaged or destroyed.
After your loan is closed, your mortgage servicer will also close your escrow account and return any remaining funds to you. Legally, the servicer must issue your escrow refund within 20 days of closing the account. You will then be responsible for paying your home insurance premiums on your own.
Although you're no longer required to maintain homeowners insurance once your mortgage is paid off, it's still recommended.
You will need to make arrangements to receive bills for your local property taxes directly, since your mortgage company will no longer be paying these out of your escrow account.
Depending on where you live, you might receive a single, annual property tax bill from your city, town or county, or you could have multiple bills from various entities like school districts, fire departments and sewer and water districts. The clerk's office at your town or city hall can assist you in identifying all the relevant taxing authorities.
After paying off your mortgage, you should notify your accountant. You'll no longer have mortgage interest to deduct on your tax return, which could potentially increase your tax liability.
However, paying off your mortgage might also free up cash that you can use for other purposes. Your accountant or a financial advisor can suggest ways to leverage the money you're saving. You might use the extra funds to:
Paying your mortgage in full usually does not have a significant impact on your credit score. But once the mortgage is removed from your credit history, your score may drop slightly because of a reduced credit mix -- that is, you no longer have as large a variety of types of debt. Because the age of your accounts also matters, and you've likely been paying off your mortgage for quite awhile, that may also ding your credit a bit.
On the other hand, the lower your mortgage balance, the lower your credit utilization. So paying off your mortgage can also have a positive impact on your credit. And you may be able to increase your existing credit lines if you inform your credit card companies that you're no longer paying on your mortgage.
Typically, it takes between 30 and 60 days for your lender to report a closed account to the three credit bureaus -- Equifax, Experian, and Transunion. That means you might not see your credit score change right away after making the final payment.
After paying off your mortgage, it's important to monitor your credit report until you see the account marked as closed. If, after a few months, the account still shows as open with all three credit agencies, contact your lender and ask them to notify the bureaus.
If you want to pay off your mortgage faster, you have two main options:
Learn more: Should I pay off my mortgage early?
Some borrowers prefer to pay off their mortgage early to save on interest and free up cash each month. However, this isn't always the best choice, even if you have the funds.
When you pay off a mortgage early, you no longer have access to liquid assets that could be leveraged elsewhere.
According to Greg McBride, CFA , and chief financial analyst for Bankrate, "There are a lot of other things you can do with the money rather than tie it up in an illiquid asset like a home where you can't get to it when you need it. [For example, you can] pay off other higher cost debt such as credit cards or personal loans, increase your retirement savings by putting more into your workplace 401(k) or contributing to an IRA, boost emergency savings, invest for other financial goals like children's education or invest through a brokerage account."
You should also consider the state of the economy before deciding to prepay your mortgage. Experts generally advise against paying off a mortgage before a recession because you'll use cash that might be more valuable in an emergency fund.
And paying off your mortgage early might not be the best use of cash if you have an excellent interest rate -- and higher rates on other debt. "Prepaying your mortgage is a comparatively low financial priority, especially if you have one of those ultra-low, sub-4 or 5 percent rates," says McBride.
However, if your other financial priorities are in good shape, paying off your mortgage early can make sense. And whether you pay off early or not, once you no longer have a mortgage payment, you can use that cash for other purposes, like saving and investing. You'll also have the security of knowing your home is fully paid for, even if your financial circumstances change.