Paying off your mortgage is a huge achievement, but what does it mean for your homeowners insurance after your mortgage is completely paid off? As a requirement of your mortgage lender, you aren’t legally required to have homeowners insurance after your mortgage has been paid off since you no longer have to repay your lender. However, it’s always wise to have a home insurance policy that protects your home and personal property in case of an accident, natural disaster, or theft.
Disadvantages to Ending Your Homeowners Insurance Policy After Mortgage Payoff
- Your home could be damaged or destroyed. It’s a terrible thing to think about, but natural disasters, accidents, and fires do happen. If your now fully paid off home was damaged or completely destroyed, would you be able to repair or replace it? That can be a very large expense that you might not be prepared for financially. Since homeowners insurance covers all of these possible risks, it’s best to keep your policy.
- You could suffer other losses. Homeowners insurance doesn’t just cover property damage or destruction from disasters and accidents. Theft and vandalism are still possible risks to your home after paying off your mortgage and are likely covered by homeowners insurance. Personal items such as jewelry, electronics, artwork, and furniture can all be covered at a percentage of your homeowners insurance policy and additional policies to cover replacement costs in case of theft or damage.
- You could be sued. Accidents might not always cause property damage or destruction, but they could happen to other people on your property and lead to a lawsuit. Lawsuits can easily put your assets at risk if not protected properly. Homeowners insurance can also cover any liabilities to you for anything that happens on your property.
What Happens After You Pay Off Your Mortgage
With your mortgage paid off, there are a few things you should be aware of. First, you’re probably going to receive a few important documents. You will likely receive a letter from your lender when your mortgage has been paid off, including a statement that the balance of your loan has been paid in full, your canceled promissory note, a certificate of satisfaction and your canceled mortgage or deed of trust.
A promissory note is essentially the outline of the mortgage you took out with your lender. You likely signed it when you first took out your mortgage, and in it, you promised to pay your lender back in a set timeframe and at a certain interest rate. Your mortgage, also called a deed of trust, in some states, is the agreement that gives your lender the title of your property.
Now that your mortgage is paid off, check your remaining escrow balance and make sure any remaining funds are returned by your lender. Many lenders will require you to pay an extra amount of money every month that was put in an escrow account to pay your property taxes and homeowners insurance premiums for you. Fortunately, many lenders require you to pay a slightly higher amount every month, so your lender might finally owe you a refund. It might take a little while, but your mortgage lender is making sure that you have successfully paid off the loan in full and it may take some time for your final payment to clear. Expect your refund check to arrive a few weeks after fully paying off your mortgage.
You are now responsible for paying your property taxes directly without the escrow account established by your lender. Update your payment options with your real estate taxing authority, or at least have all future bills sent to your home. Don’t forget to remove or change any automatic payments set up through your bank that are paid to your lender.
Update Your Homeowners Insurance Policy After Mortgage Payoff
Now that you’ve completely paid off your mortgage and know all the reasons to keep your homeowners insurance policy in place, it’s time to make some updates. The first thing you should do is contact your insurance company to inform them that you are the sole owner of the home. If you do not remove your lender from your homeowners insurance policy and ever filed a claim, all policyholders, including the lender you did not have removed, are entitled to a payment.
You might also want to update your payment options with your insurance provider, or at least have all future bills sent to your home. Like with your property taxes now, you are responsible for paying your homeowners insurance premiums. Again, don’t forget to remove or change any automatic payments set up through your bank that are paid to your lender.
Now that the financial aspects are out of the way, it’s also important to review and update your current homeowners insurance policy. Do your research and speak with an agent from your provider about your home’s coverage. You might be able to save money or better meet your home and property’s needs, as well as your own needs now that you are not under the requirements of your mortgage lender. Many homeowners insurance companies offer discounts for significant life events and milestones, including when you pay off your mortgage. Ask your insurance agent if you qualify for a discount, and even if you do not qualify, you can now easily compare quotes from local homeowners insurance companies to find a better or more affordable policy.
