After years of budgeting for a mortgage payment, when you finally make the last payment on your home -- or refinance into a better loan -- you may be tempted to toss all your mortgage documentation into a ritual bonfire to celebrate. While it can be tempting to clear out your files when you finish up with a lender, you should not be in a rush to toss mortgage papers into the garbage.
Basic Mortgage Documentation
Closing papers as well as a copy of your mortgage agreement and your deed should be maintained as long as you own your home, as they’re fundamental documentation of your ownership of your home. These documents should be kept in a safe place, and because you don’t refer to them frequently, you won’t need to keep them handy in your normal records storage. The US. General Services Administration recommends renting a safe deposit box to keep these documents secure.
Although your abstract of title isn’t technically a part of your mortgage documents, it’s an important part of your home’s paper trail. Because it’s an important tool to prove that your property’s title is clear -- that you own it without any liens on it -- hold onto it for as long as you own the property. Because it’s not the sort of document that you’ll need to refer to on any regular basis, it’ll be at home in a safe deposit box.
As you worked to pay off your home, your lender sent you periodic mortgage statements that reported your progress in paying down your debt. While these aren’t official parts of your mortgage documents, you should have filed them as they came in. Because these statements aren’t mortgage documents, and more like banking records, you don’t need to keep them until you sell you house, but you’ll need to hold onto all of them for seven years after you pay off your mortgage.
Records and Taxes
When you sell your home, the Internal Revenue Service requires you to pay capital gains taxes on any gains that exceed $250,000 on your primary residence. Your mortgage documentation establishes your home’s basis -- essentially just a fancy term for the amount you paid for it used when calculating your gains -- and become essential documents for tax purposes when you decide to pull up roots and find a new place to live. You’ll also want to keep track of the cost of any improvements, legal and advertising fees you incur as part of selling the home, which also add to your home’s basis.
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