Paying off a loan can positively impact your credit score and free you from debt. But what happens once you make that last loan payment? Learn what happens when the terms of a secured loan are satisfied!
What Happens Once I Pay off a Mortgage Loan?
Are you close to paying off your mortgage loan? Once you make a final mortgage payment, you will have full ownership of your property! However, there are a few steps you need to take once that final payment clears.
Mortgage Satisfaction Document
Once you finish making mortgage payments, your lender will provide various documents. One key document to look out for is the Satisfaction of Mortgage form. Also known as a Mortgage Lien Release, a Satisfaction of Mortgage document states the borrower has met the terms of a mortgage agreement. Paying off a mortgage will remove the lien on the property.
Your mortgage lender may file the signed document on your behalf with the land registry office, recorder of deeds, county recorder, or city registrar. It typically takes a few weeks or months to file this legal document. You can contact your local records office to confirm that your lender filed the mortgage document.
Suppose a mortgage lender fails to record a Satisfaction of Mortgage document within 60 days from the final payment date. In that case, you can file a lawsuit against the mortgagee. Contact a local law firm to speak with an intake specialist about your legal options.
Update Your Insurance
Mortgage lenders require home insurance for collateral protection. Typically, lenders will require a pricey insurance policy that covers different types of damage. But once there is no outstanding balance on a mortgage, you can downgrade your insurance policy to save money. Homeowners insurance is essential because it protects your asset from unexpected damage, so you should not get rid of it completely.
If the money in your escrow account paid your homeowners insurance, you might have extra money available! The financial institution will issue a refund if money is leftover in the escrow account. Ensure you inform your insurance provider that you paid your mortgage in full. Your insurance provider must update your data and payment information.
Update Your Taxes
You will have to continue paying property taxes even after you stop making monthly payments to the mortgage lender. Contact your state, county, and local taxing authorities to ensure you receive your property tax invoice.
If you need help filing taxes once the new year arrives, consider using a certified VITA tax preparer. The Volunteer Income Tax Assistance (VITA) program offers free tax assistance to eligible individuals. You may qualify for the VITA program if you are disabled, elderly, make less than $54,000, or have limited English proficiency.
Filing taxes can be stressful for homeowners, but failing to file within a specific timeframe can incur severe penalty fees and tax liens. A tax lien is when the government has a legal claim on your property due to unpaid tax debts. You may have to take advantage of tax resolution services to get rid of a tax lien.
What Happens Once I Pay off My Auto Loan?
An auto loan allows consumers to finance the purchase of a new or used vehicle. Once a borrower pays the last loan payment, they gain full ownership of the car! However, you have to take a few additional steps once the lender issues a lien release.
Get Your Car Title
Auto loan lenders place a lien on the certificate of title during the repayment process. A certificate of title is a legal document that establishes a person or business as the vehicle’s legal owner.
When the auto loan terms are met, the lender will remove their name from the car title and give you the title document if you live in a title-holding state. When the car title arrives in the mail, you can take the title to your state’s BMV or DMV to get an updated title in your name.
You may already have the car title if you live in a non-title-holding state like Arizona. If you have the car title in your possession, you do not have to wait for the lender to mail your car title. You can travel to your local BMV or DMV with your lien release letter to get an updated car title.
Update Your Insurance
Once you transfer the car title to your name, contact your insurance provider to remove the auto lender from your policy and update your personal information.
Financing a vehicle requires full coverage insurance to protect the car against cosmetic and structural damage. However, you can change your insurance policy after you pay off the auto loan to get a lower monthly payment and reduced coverage.
What Happens Once I Pay off a Promissory Note?
Financial institutions and consumers can use a Promissory note to create legally binding contracts. Promissory notes ensure the borrower repays the debt according to the agreed-upon repayment terms.
Get a Release of Promissory Note
The lender should create a release of the promissory note for the borrower when repayment is complete. A release of promissory note is a payment receipt that states the borrower has paid the debt in full and has no more financial obligations. Both parties must sign the document for a release of promissory note to be valid. The lender should also give the borrower the original promissory note with a notation that states the debt is “canceled” or “paid in full.”
Keep an Eye on Your Credit Report
Keep an eye on your credit report after paying off a loan. After the terms of a loan are satisfied, your lender will report your final payment to the major credit bureaus. The loan account on your credit report will be closed and marked as “paid in full.” Paying off debt will lower your debt to income ratio, significantly improving your credit score.
Every year, consumers get one free credit report from Equifax, Experian, and TransUnion. You can access your free credit reports online by visiting the Annual Credit Report website. After completing the Annual Credit Report Request Form, you can download your financial file.
If your credit score is not as high as you want after paying off a loan account, you can still improve it. You can boost your credit score by continuing to make on-time payments, paying down debt, and avoiding hard credit checks. Eventually, you will be able to secure a high credit score! An excellent credit score can help you get faster approval, more money, and lower interest rates.
Decide What To Do With Extra Money
Once the terms of a loan are satisfied, you will have more money to spend. But what should you do with the money left over? If you have other debt obligations, consider working on paying them off. For example, you can free yourself of an online payday loan to get even more money in your pocket.
If you do not have an emergency fund, you can start by opening a savings account at a bank or credit union. Saving money can help you afford unexpected expenses and various financial goals, such as a beach vacation. Start by depositing a certain amount of money monthly!
Learn more about finance, and subjects like promissory note loan pros and cons, in the CreditNinja Dojo!
References:
What Happens When You Pay Off Your Mortgage?
What is Volunteer Income Tax Assistance (VITA)?
Understanding a Federal Tax Lien
What to Do Once You Pay Off Your Car
Release Of Promissory Note
