Many people look forward to the day when they no longer need to make house or car payments, and when they own their property free and clear. Such ownership, when no mortgages, loans or liens still remain on the property, is called a good title or a clear title. With a clear title, you own your property fully, and only you, or anyone else who jointly owns the property with you, has any claim to it.
It would be a mistake to assume that having a clear title doesn’t mean you won’t continue to make certain payments. For instance, with a clear title on a car, you may need to make yearly car registration payments, and you might also be required to carry a minimum amount of car insurance. Owning a home or other property free and clear doesn’t mean that a state or federal agency won’t come asking for property taxes each year. If you fail to pay those taxes, the agency requiring taxes can repossess your home.
Similarly you can own a clear title on property that sits on property you don’t own. You may own a mobile home but not the land it sits on. This means you must pay space rent each month in order to continue to reside where you do. Failure to pay space rent can mean eviction from the land your upon which your home sits.
Occasionally, people forget the income tax benefits of owing money on a home and not possessing a clear title. When you’re paying off a house in the US, you get to deduct any interest payments from your yearly income. Once you own the home free and clear, you may find yourself in a higher tax bracket. On the other hand, without a mortgage payment to make each month, you’ll be able to afford a slightly higher tax rate.
Sometimes it makes sense, especially with property titles, to mortgage the property to obtain a loan for part of its value. You will no longer own a good title, but if you use a new mortgage for improvements to your home, you may raise the value or the saleability of your home in a stable housing market. The value in a good or rising housing market may exceed the amount of your investment, suggesting the benefits in taking a new mortgage on a clear title.
Housing market does need to be mentioned. A clear title does mean you own your home solely, but value of the title is affected by current housing prices and fluctuates. Clear titles on automobiles, unless they are rare or classic, tend to mean that the value of the automobile stably declines. Most cars decrease in value based on age, mileage, and any wear and tear.
