One method for protecting your debt-free real estate asset is to create a family trust that places a mortgage on the asset. You, the homeowner, are the beneficiary of the trust. This mortgage encumbers the property making it less attractive TO people looking to commit open fraud.
File a Homestead Exemption
A homestead exemption can help protect property by making it unavailable to creditors. The downside of a homestead is you're required to live on the property to qualify in most states. This might be an option if you inherit a paid-off property that you intend to inhabit.
When you have paid off your mortgage in full: Your escrow account will be closed. Any funds remaining in the account will be returned to you. The mortgage servicer is obligated by law to send you your escrow refund, if any, within 20 days after it closes your account.
Over the time you repaid your mortgage, you legally owned the property, but the lender held the mortgage lien, or claim, to it. Now that you've paid back the loan, the lender needs to remove the lien. To do that, it'll issue the deed of reconveyance.
It's possible to get a HELOC, home equity loan or cash-out refinance with a paid-off home, but it comes with a trade-off. Home equity products can help you borrow against your home for the cash you need, but you must risk your home as collateral.
The bottom line
If you've paid off your home in full, you can still take out a home equity loan against your property. It means you'll have a monthly mortgage payment again, so make sure you can afford the additional cost.
Or you can use an investment property as collateral for a primary residence. Banks will look at real estate collateral favorably as property generally holds its value and would allow them to make back losses more readily. However, using your home as collateral means that defaulting could result in foreclosure.
After the “Discharge of Mortgage” document (see 8 for an explanation) is filed and recorded, the Registry returns the document to the party who recorded it. Your deed should have been returned to you shortly after you purchased your home*.
This can be particularly helpful if you have a limited income. You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Keep indefinitely
Mortgage documents: Keep any mortgage paperwork you get when purchasing your home. Even if you pay off your mortgage, you'll receive a release or certificate of satisfaction; keep that, too.
“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
Unless you take steps to protect them, most assets are not protected in a lawsuit. One of the few exceptions to this is your employer-sponsored IRA, 401(k), or another retirement account. At Bratton Estate and Elder Care Attorneys, our lawyers recommend putting an asset protection plan in place before you need it.
Putting assets in trusts, insurance policies, retirement plans and offshore accounts are among the most common ways to protect your assets. You can also protect them through forming Limited Liability Companies, establishing prenuptial agreements and including arbitration clauses in your contracts.
Some attempts at asset protection include putting the property or financial resource in the name of a family member or other trusted associate. For example, an heir might be gifted ownership of real estate or other property while the actual owner continues to reside in the property or make use of it.
Almost 40% of US homeowners own their homes outright as of 2022—many of them baby boomers who refinanced when rates were low.
Even one or two extra mortgage payments a year can help you make a much larger dent in your mortgage debt. This not only means you'll get rid of your mortgage faster; it also means you'll get rid of your mortgage more cheaply. A shorter loan = fewer payments = fewer interest fees.
Completing a mortgage payoff early could save you a bundle of money, not to mention years of not having a big payment hanging over your head each month, according to Dave Ramsey, financial guru, author and host of “The Dave Ramsey Show.”
If your name is on the deed but not on the mortgage, your position is actually advantageous. The names on the deed of a house, not the mortgage, indicate ownership.
When a deed of trust/mortgage is paid in full, you can record a Full Reconveyance from the trustee stating publicly that the loan has been paid. The Full Reconveyance Form is completed and signed by the trustee, whose signature must be notarized.
Deed vs mortgage– which is more important? A house deed and a mortgage are both important aspects of owning a home. However, when it comes to establishing home ownership, the deed is more important. When a person has their name on the deed, it means that they hold title to the property.
Cash-out refinance
When you already own your home outright, you aren't paying off an existing mortgage. So most or all of the loan will come to you as a lump sum of cash. You can typically borrow up to 80% of your home's value using a cash-out refinance.
If the value of your home drops significantly, your lender may decrease your HELOC limit to reflect the reduced equity or freeze your HELOC account altogether. A housing market crash may also cause you to default on your HELOC if you owe more on your home than it's worth.
Home Equity Loan Disadvantages
Higher Interest Rate Than a HELOC: Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan. Your Home Will Be Used As Collateral: Failure to make on-time monthly payments will hurt your credit score.