Negative financial information -- such as a foreclosure or bankruptcy -- can remain on your credit report for up to 10 years. That's the bad news for consumers who've lived less-than-perfect financial lives. But the credit bureaus aren't interested only in your financial miscues -- they also track when you pay off large sums of debt, and this financial news can remain on credit reports for several years, too. This includes the notice that you've paid off your mortgage loan.
Paid-Off Mortgage Loan
The three national credit bureaus -- Experian, Equifax and TransUnion -- report your financial mistakes. If you're late on your credit card bill or missed an auto loan payment, it shows up on your credit report. And when you pay off your mortgage loan, a mortgage paid-off notice appears on your credit report. Your paid-off mortgage remains on your credit report for 10 years, a decade beginning immediately after your paid date.
Don't expect a paid-off mortgage to help your three-digit credit score -- oddly enough, your numbers might dip. That's because the credit bureaus like it when you make your regular loan payments on time each month, showing that you're a responsible user of credit. So having a mortgage and paying it on time boosts your credit score. Paying off this loan won't have as much of an impact as paying off your regular home-loan payments. And if your mortgage is your only installment loan -- say, you don't have a regular car payment -- your credit score might fall a bit when you pay off your loan. This varies depending on where your credit score already stands, how much credit card debt you have and how often you pay late or miss payments.
Putting Off Paying It Off
If you have the option to pay off your mortgage early, you might want to hold off. If you have significant credit card debt, for example, it might make more sense to use the extra money you would have sent to your lender to your credit card providers to reduce that debt. Credit card debt, after all, usually comes with far higher interest rates than mortgage loan debt.
When Paying Off Makes Sense
Paying off your mortgage debt early could make sense in certain situations, if you have the financial discipline to invest the money that you would have sent to your mortgage lender. Some homeowners might not want to lose their mortgage interest deduction, but, depending on how much you pay in interest each year on your loan, that deduction might not be helping you. For many homeowners, the standard deduction for a married couple filing jointly -- which was $12,200 in 2013 -- is higher than the amount they'd receive for paying mortgage interest and property taxes. If you're a good investor, then, don't let the interest deduction keep you from paying off your mortgage early and investing that monthly mortgage payment in an investment vehicle that boasts a solid rate of return.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.