What Happens to Escrow When Your Mortgage Is Paid Off?

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After you pay off your mortgage, you might gain a newfound sense of pride in your home. You really, truly own it. If things go bad, you’ll probably have extra money each month and have a far lower chance of losing your house.

For your new status as free-and-clear owners to take effect, you might need to do more than just make your last mortgage payment. To make sure you’re completely off the hook, find out more about what should happen when you pay off your mortgage.

Congratulations! You’ve reached the exciting milestone of paying off your mortgage. But what happens to your escrow account after you’ve made that final payment? Don’t worry, we’ve got you covered.

What is an escrow account?

An escrow account is like a holding tank for your property taxes and homeowner’s insurance. Your lender collects a portion of these expenses each month along with your mortgage payment. This ensures that these important bills are paid on time, even if you forget or fall behind.

What happens to the escrow account when you pay off your mortgage?

Once your mortgage is paid in full, the escrow account is closed. Any remaining funds in the account will be returned to you within 20 days. However, there are a few things to keep in mind:

  • Your lender is required by law to return your escrow refund. You don’t have to do anything to claim it. The lender will automatically send you a check or direct deposit.
  • The amount of your refund may vary. It depends on how much money was in your escrow account at the time of payoff and how much your property taxes and homeowner’s insurance have changed since then.
  • You will be responsible for paying your own property taxes and homeowner’s insurance from now on. Your lender will no longer be doing this for you.

What should you do with your escrow refund?

You have a few options for what to do with your escrow refund:

  • Save it for future property taxes and homeowner’s insurance. This is a good option if you want to avoid having to come up with a large sum of money all at once.
  • Use it to pay down other debt. This could be a good way to save money on interest payments.
  • Invest it. This could be a good way to grow your money over time.

No matter what you decide to do with your escrow refund, make sure you understand your local property tax laws and when they are due. You will also need to make sure you have homeowner’s insurance in place.

Here are some additional resources that you may find helpful:

  • Consumer Financial Protection Bureau: Mortgages key terms
  • Consumer Financial Protection Bureau: After I have paid off my mortgage, how do I check if my lien was released?
  • Bankrate: What happens when you pay off your mortgage?

What Documents Can You Expect?

The documents you receive may depend on your loan servicer. Here’s what you can expect, which documents are essential and which ones you can make do without.

  • Canceled promissory note (“note”). A promissory note is an agreement to pay for something, in this example, a mortgage. You may or may not receive this document. If you have additional documentation proving you’ve paid off your loan, it should be acceptable if you don’t.
  • Deed of trust or mortgage deed (“deed”). A deed is a formal record that, in the event that you default on your mortgage, gives your lender ownership of your house. After you pay off your mortgage, your servicer may or may not send you this additional document. Additionally, it is possible that your servicer will only forward it to the government office of records where the original recording of your deed was made.
  • Certificate of satisfaction. Once you or your loan servicer provides official documentation of your loan being paid off, your local office of records (the county recorder, county clerk, or another department depending on where you live) will record a certificate of satisfaction. Expect to pay $25 to $50 for this service. The fee on your loan payoff statement might be the cause of this. This is a document you definitely want for your records.
  • Final mortgage statement. Obtaining your final mortgage statement, which demonstrates that you owe no principal, interest, or fees, is simple and free. Keep this one as well as evidence of complete repayment.
  • Loan payoff letter. You may receive an official letter from your loan servicer confirming that you have completed loan repayment. Once more, as long as you have additional proof, it’s acceptable if they don’t.

You might need to get in touch with your loan servicer and talk to the lien release department if, after roughly ninety days, you still don’t have documentation that the certificate of satisfaction has been recorded.

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What happens when you make your last mortgage payment?

FAQ

How long can a mortgage company hold escrow after payoff?

Paid off mortgage completely: If you have a remaining balance in your escrow account after you pay off your mortgage, you will be eligible for an escrow refund of the remaining balance. Servicers should return the remaining balance of your escrow account within 20 days after you pay off your mortgage in full.

Do I need to do anything when my mortgage is paid off?

Once you pay off your mortgage, ensure you get the necessary documents from the lender and use the extra funds you now have to think about your future through a pension or retirement plan. You can also consider renovations and home improvements, vacationing or settling other debts.

Do you get leftover escrow money?

Most lenders will happily accept extra funds as a cushion of sorts, as long as you specify that the money is for the escrow account. Any excess money left in the escrow account is likely to be refunded to you at the end of the year, so you lose nothing as long as you can afford to set aside that money in escrow.

What happens to your escrow balance when you sell your house?

If you have paid off your mortgage completely and there is money left over in your escrow account, then yes, you get your escrow money back. Regarding the good faith deposit made into an escrow account before a home sale is finalized, the funds eventually go towards your downpayment.

What happens if I pay off my mortgage?

When you pay off your mortgage, your lender will provide you with documents to show you have paid off your home loan in full. You must collect all the necessary paperwork, and in some cases, escrow funds, before you can consider yourself finished with your mortgage.

What happens to my escrow account after closing?

After closing, the mortgage servicer that collects your monthly payments will most likely manage your escrow account. Although you’ll make just one monthly payment, the servicer will divide it between funding your escrow account and paying down your mortgage principal and interest.

Do I have to pay escrow at closing?

Your lender will open a mortgage escrow account at closing, when you pay some of the escrow in advance. You will pay no more than one-sixth of the total estimated yearly escrow at closing, which will allow the lender or loan servicer to have a couple of months’ worth of payments in advance.

What is mortgage escrow?

The portion of your payment directed toward escrow is typically smaller than the principal and interest payment. Mortgage escrow accounts should not be confused with the term escrow used during the home purchase process. You’ll pay earnest money when making a purchase offer to protect the seller in case the purchase doesn’t go through.

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