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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).
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