First, congratulations on paying off your mortgage! Paying off any debt is worthy of a celebration. Paying off a mortgage is a remarkable feat, especially if you have been paying off the home for a substantial period of time, say 15 or 30 years.

At this point, there is not much for you to do, other than make sure you continue to pay your property taxes and ensure that the lender has removed the lien it placed against your home when you got your loan.


Basics of Escrow Accounts

Escrow refers to a third-party service that is part of every home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects a deposit from the buyer that is equal to a small percentage of the sale price. This deposit is known as “earnest money”. In exchange, the seller takes the property listing off the market. Until the final exchange is completed, both the seller’s property and the buyer’s deposit are said to be in escrow.

While a mortgage holder (most typically a bank) collects the principal and interest payments each month, they also can collect homeowner’s insurance payments and property taxes. They will then pay those bills when they come due. They do this because when you borrow money from a lender to finance your home purchase, the property becomes the collateral for your loan. Your lender needs to know that the property is adequately insured so that it can be repaired or replaced if damaged. Likewise, they want to prevent a tax lien being placed on the property if you neglect to pay taxes.


Leftover Money in Escrow

When the final mortgage payment is made, there is generally money left over in the escrow accounts. The lender should provide you with an escrow statement, which you can check to ensure the information matches your own records. If you find an error or have a question, let your lender know before a refund check is issued.

The homeowner should receive these leftover escrow monies in a separate check. However, it is possible to work with the lender prior to making the last payment and apply the funds left in the escrow account to the final payment balance.

        • Refund

      The easiest way to close an escrow account is to take a refund of the unused funds. Once you have verified that the amount is accurate, the lender will return that money to you in full. In most cases, it will mail a check to your address on file within a couple of weeks. If you have an account with the bank, it may also allow for a direct deposit into your checking or savings account.

        • Payoff

      An alternative use of your escrow overage is to include it as part of your mortgage payoff. If your bank allows you to use the money in this way, you have to know in advance how much you have left over. If you have gotten a new loan, the new lender will reduce that refinance amount by the escrow overage. The title company will indicate the excess escrow on the settlement statement at closing and your current lender will apply the new funds when it applies the payoff.

        • Refinance

      When you refinance, there is a good chance your new lender will require its own escrow account. It is important to know that you cannot transfer your existing escrow to a new account. You will have to fund the new escrow account at closing out of pocket. Fortunately, you will still get your refund once the old loan is paid off. If you have a negative escrow balance, this amount can be rolled into your new loan amount, provided you have enough equity and can qualify financially for the higher amount.


Property Taxes and Insurance Premiums

While you may have paid off your mortgage, your property taxes and homeowners insurance do not simply go away. Once your mortgage is paid off, you no longer have a lender requiring you to have homeowners insurance. While you are not federally required to have it, it is highly recommended that you keep your coverage since it protects you financially if your home incurs major damage or if someone is injured on your property.

If your homeowners insurance was paid by your lender via escrow, you will need to contact your provider to inform them that you paid off the mortgage and make arrangements to handle the bill yourself. Also, make sure your premiums are set up to deduct from your bank account, not your lender’s.

Property taxes, on the other hand, are not optional, and you now have to remember to pay them. Check with your state, county and local taxing authorities to have your property tax invoice sent to you. Find out their billing frequency, since some charge annually and some charge quarterly, and make sure to start budgeting for this expense.


Budgeting After Mortgage Payoff

Although no longer making a mortgage payment lowers the monthly cost of home ownership, it is still important to budget for your property tax and insurance payments. The best way to determine what you owe and how much you need to put aside each month is by dividing your annual property taxes and insurance premiums by 12. Add the monthly cost of taxes and premiums together, and that is your monthly budget number for these purposes.

Handle these matters as soon as possible. In a worst-case scenario, failure to pay property taxes can end up with a house going to auction at auction. At the least, neglecting to pay property taxes promptly means financial penalties and a drop in your credit score. If you do not notify the insurance company that you are now the home’s sole owner, filing a claim may become a confusing and delayed process.


What Happens at Citrus Heritage Escrow?

During the escrow period, our title department begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.

Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.

When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.

Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200