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The Simple Dollar

30-year mortgage. One last payment. What'll prove I'm debt-free?

30-year mortgage proof of payoff, setting a budget, and baby life insurance are three topics in this week's reader mailbag. Answer to payoff of 30-year mortgage comes in question No. 9.

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Q6: Repaying an old debt
I have about $6000 in debt on my credit report, most of it over 5 years old. I started saving in order to pay it off but someone mentioned to me and I think you wrote that making a payment will bring the debt current. If in fact the debt falls off after 7 years, is it worth it to may payments on it and in essence bring the debt current or just let it fade away?
- Ryan

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In terms of honesty and repaying money you borrowed from someone, of course it’s not the right thing to do.

In terms of strictly looking at your credit report, the debt is probably best left unpaid.

To me, this is really backwards. The current credit score system in this country encourages people to do thedishonest thing if debts have gone unpaid for more than a year or two. I am not a fan of the current way in which credit is evaluated in the United States.

Q7: Baby life insurance
My husband and I just had our first child. We are young newlyweds and are looking for advice on what type of life insurance to buy for our baby and also the easiest way to create a will. Thank you!
- Jill

The easiest way to create a legal will is a service like LegalZoom. They’re perfect for a relatively simple process like creating a basic legal will.

As for buying life insurance for a baby, I generally don’t think it’s a good idea. The purpose of having a life insurance policy is to protect the family in the event of the demise of a breadwinner. The passing of a child doesn’t fall under this category. If it does happen, it’s an expense that you can easily manage and keep moving forward.

If you’re worried about a situation where your child is uninsurable in their twenties or thirties because of a medical condition, these situations are quite rare. Virtually everyone in their twenties or thirties is insurable to at least some level, and most everyone is insurable at a pretty reasonable cost.

Take the money you would have put into life insurance for your baby and apply it to something else, like a college savings plan.

Q8: Paying off no interest loan
I’ve been reading your blog along with several others and all have the same ideas about debt (bad) and savings (good) and how debt can inhibit your ability to save; I’m totally into it. I have no high interest credit card debt as of this month (woot!) and now only have three sources of debt, my mortgage, my wife’s student loan, and a no-interest loan from my parents. They sold me a Toyota Highlander for $9,000 and asked for a monthly payment of $200 until the loan is paid off. I’m about $3,000 into paying it off at this rate. Is there any conceivable benefit to paying it off earlier? To me it seems like free money. Thanks.
- Carl

If you’re looking at it strictly as a debt, there’s no benefit in paying it off early. If you have a zero-interest loan, you’re always better off paying it as slowly as you can.

The catch here is that it’s a loan between family members. A loan between family members is one that’s often made possible because of the strength of a pre-existing relationship. In essence, that relationship is extra collateral on the loan. If you don’t pay that loan off, you can damage the relationship. On the other hand, if you pay that loan off with expedience, you often can strengthen that relationship.

I’m pretty strongly opposed to loans between family members. If I were in your shoes, I’d probably debt snowball this family loan just like the rest of my loans.

Q9: Mortgage payoff paperwork
I’d love to get your advice on a mortgage issue. After much aggressive prepayment of principal, I’ll be sending in my last mortgage check next month. It’s a birthday present to me to pay a 30-year mortgage off in 13 years. Many might call it crazy, but I’m thrilled. So here’s the question:

What papers does the mortgage company need to send me to prove I’ve paid off the mortgage? Are there any documents they (or I) should file with the county where I live in Virginia? I seem to recall my mortgage company sending some notice that you must PAY them to get the payoff papers. That would be outrageous. They’ve made a handsome profit on me, and I’ll fight any additional fees. I thought I’d try the high road first, by calling for the exact payout, sending the check, and then writing them a nice letter asking them to register and send the paid documents to me as soon as possible. Problem is, I’m not sure what to ask for. Please let me know what I must get from them and add info on any optional things it would be nice to get.

You know the saying: a happy customer tells 3-5 friends, and a unhappy customer tells a dozen. Don’t recall the numbers in the saying, but I’m ready to rain a boatload of bad publicity down on them if a responsible customer is ripped off by a bogus money-grubbing policy. Sorry I’m so vehement, but I really want to do this right. I’ll start with a positive letter and ratchet up as needed.
- Alan

The process for this varies from state to state. The usual procedure is that when you pay off a loan in full, the mortgage company then contacts the state, releasing their lien from your home mortgage, at which point the county clerk mails you a copy of your lien-free house title.

If I were you, I’d contact both the mortgage company and the county recorder of deeds to find out what’s next. If you’ve paid off your mortgage, your county’s recorder of deeds should be aware of this and should be able to help you with the next step.

Usually, what will happen is that you’ll have to get a notarized copy of your lien-free deed from the county recorder. That’s legal proof that you own the house free and clear.

Q10: Vegan to vegetarian
I’ve noticed lately that you seem to have switched from being vegan to being vegetarian. What gives?
- Chloe

Last October, I started a vegan diet due to the suggestions of a dietitian who was advising me on some minor medical concerns. This lasted for about nine months, at which point my health was in a better place.

The biggest reason I switched back to vegetarianism is that being vegan – meaning that I eat no meat nor any foods containing animal protein like eggs and cheese – is an incredibly difficult diet with three young children. For a long time, we simply followed their pediatrician’s recommendation that we feed them normally by essentially preparing two different meals each day or by serving them a vegan meal with a heavy protein component to it. This meant lots and lots and lots of beans.

Vegetarianism is simply more flexible, while retaining most of the health-oriented reasons for my original dietary switch. I’m pretty happy with how things are going with it.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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