Risk of having a paid off house?

[Duke03]

Maybe I'm being paranoid, but I was thinking about paying off my home sometime this year.  I owe 5x,xxx.00 on it and was just going to use some cash I have laying around to pay it off. I got to thinking the other day and I was wondering what are the risks one might take on with having a paid for home?  I'm not talking about the opportunity cost of having a large amount of money tied up in your home.  I'm talking about say if you are involved in a lawsuit or say you have a total loss on the house and insurance tries to screw you because you own it free and clear.  I have a homestead exemption on my house and I called my insurance agent and he assured me I have the proper coverages in place and have guaranteed replacement cost coverage.  Just wondering if I'm being paranoid for no reason or is there anything else I should be worrying about that I'm over looking.

[jeroly]

I don't think your legal liability is greater or less but rather the same regardless of whether or not you have a mortgage.
The only risk I can see is the risk inherent with not having the cash on hand.  If the market dropped 30% in a day and you wanted to buy in, you might not be able to remortgage the property to obtain $$$ before there was a recovery in the market.

Why would the insurance company be more or less willing to screw you over based on having a mortgage or not?  Doesn't make sense.

[SunnyDays]

My house has been paid off for many years and I haven’t found a downside yet!  Mortgages aren’t tax deductible in Canada, so there’s no savings there.  I do save a few bucks every year on my house insurance for being mortgage free.  Personally, I like owning it free and clear.

[Telecaster]

I'm talking about say if you are involved in a lawsuit or say you have a total loss on the house and insurance tries to screw you because you own it free and clear.  I have a homestead exemption on my house and I called my insurance agent and he assured me I have the proper coverages in place and have guaranteed replacement cost coverage.  Just wondering if I'm being paranoid for no reason or is there anything else I should be worrying about that I'm over looking.

If insurance company is going to screw you they will try to screw you either way.  In theory, the bank might go to bat for you in order to protect their collateral, but you would still owe the mortgage even if the house is destroyed. 

[kite]

No risk to owning a paid off house.
Could be a risk to having less access to liquidity. 
The answer for you depends upon how much other money you “have lying around” in the event the SHTF. 

[justinramani]

Besides the warm weather and being close to the water, homestead protection is one of the main reasons we are moving to Florida. It’s reassuring to know that my house can’t be taken from me if something catastrophic occurs.


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[stoaX]

My house has been paid off for many years and I haven’t found a downside yet!  Personally, I like owning it free and clear.

Same here.

[Cranky]

I thought not having a mortgage would ding our credit scores, and didn't really mind that, but it has not.

[TomTX]

I thought not having a mortgage would ding our credit scores, and didn't really mind that, but it has not.

Unless you paid it off 7+ years ago, the paid-off mortgage is still considered in your credit score.

[seemsright]

I thought not having a mortgage would ding our credit scores, and didn't really mind that, but it has not.

Unless you paid it off 7+ years ago, the paid-off mortgage is still considered in your credit score.

The only downside we have found is if we want to get another mortgage on another house in the future the loan process will be a PITA due to not having a mortgage on our credit report. That is the only downside we have found.

[Cranky]

I thought not having a mortgage would ding our credit scores, and didn't really mind that, but it has not.

Unless you paid it off 7+ years ago, the paid-off mortgage is still considered in your credit score.

It’s been longer than that. It’s not a particularly expensive house. I have a credit card, dh has a credit card, both are paid off every month. That’s it.

[nereo]

Downsides are likely minimal, but still present.  In no particular order
1) opportunity cost (likely the biggest of all these)
2) [slightly] more difficult to obtain a HELOC or re-mortgage
3) potentially more liability during a total loss scenario (i.e.  insurance claims)
4) target for con-artists (who target homeowners with no mortgage)
5)...

None of those would be large concerns of mine.  I choose not to pay off a mortgage because it gives me peace of mind as an inflation hedge and because I have far more productive things I can do with my money.

[life_travel]

Here in Australia I just recently read a story about paid off house identity theft type fraud. The person impersonated the overseas owner and sold their house because it was easy to obtain a copy of the title on a fully paid off home.

Now there's no recourse for the owner as the person who bought it was unaware and it's just a mess.

If the owner left it mortgaged , but fully offset, it would never had happened, because banks require all sorts of IDs and docs.