Do You Have to Go Through Escrow to Pay Off a Home Loan?

For newly married couples, young borrowers and anyone with limited experience in the home buying and mortgage world, the process of putting a home in escrow can be a bit daunting. However, if you already have a home mortgage and are prepared to pay it off in full, you may not even have to go through the escrow process.

What Is Escrow?

When you're paying off a home mortgage, you don't have to go through escrow. The process of escrow exists to provide both home buyers and home sellers some peace of mind in the last stages of the home buying process. A neutral third party holds the buyer's funds in escrow, while the title (ownership record) of the home is fully evaluated. If there are problems with the ownership (non-discharged liens, for example), the buyer can raise the issue knowing that the escrow holder will not release the funds until the liens are cleared.

When Escrow Is Required

Escrow is generally only required during the home purchasing phase of mortgage financing. The reason a third party enters this equation is to provide peace of mind to all parties. Escrow is not required if you are merely paying off your mortgage, because it's the loan borrower's responsibility to provide the adequate funds for the mortgage to be paid in full. It is also the responsibility of the mortgagee (the person who's paying the loan back) to make sure the title is clean after the payoff.

Escrow for Taxes and Insurance

The only way that the term "escrow" enters the equation when you pay off your home loan is if you chose to include your homeowners insurance and property taxes in the actual mortgage payment (some companies mandate this, to ensure that you make these payments on time). If you are paying off your mortgage, you need to contact your lender, as it will no longer be servicing these two accounts (your insurance and taxes), and it'll now be your responsibility.

Full Payoff

When paying off your mortgage, however, it is your responsibility to clear the ownership record on your home. When you are in escrow to purchase a new home, your realtor or home lender will likely provide this service, but when you pay your loan in full, you need to do this yourself. The first step is to ask for a paid-in-full statement from your lender. Next, ask for a discharge of mortgage (which should be notarized). Last, check with your local registry of deeds to ensure that the mortgage (and all other liens) have been released from your property.

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