Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

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Apathizer
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Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by Apathizer »

I plan to sell my home in about a year. My mortgage balance is ~$17K. I can probably pay off the mortgage before selling my place. I'm trying to figure out if there are any financial or other practical advantages to doing so. Any constructive info and input is appreciated. :happy
ROTH: 40% AVUS, 20% AVDE, 15% AVEM, 25% BNDW. Taxable: 50% BNDW, 30% AVUS, 12% AVDE, 8% AVEM.
delamer
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Re: Is There Any Benefit to Paying Off a Mortgage Before Selling?

Post by delamer »

If you still have a mortgage at settlement, the funds to pay if off will be disbursed to the loan holder after the settlement. You’ll need to get the payoff amount, and provide it and other loan information to the settlement company.

A very minor hassle.

If you might end up purchasing a new-to-you home with a mortgage before selling the old one, then it’s better not to have a payment (on the old house) in terms of qualifying.
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lazynovice
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by lazynovice »

Not really. The interest savings which for you appear to be nothing. A fee your lender may charge to process the lien release. One less clerical thing that could delay closing paperwork.
shess
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Re: Is There Any Benefit to Paying Off a Mortgage Before Selling?

Post by shess »

Apathizer wrote: Sun Mar 27, 2022 1:53 pm I plan to sell my home in about a year. My mortgage balance is ~$17K. I can probably pay off the mortgage before selling my place. I'm trying to figure out if there's a financial or other practical advantage to doing so. Any constructive info and input is appreciated. :happy
In closing you'll have to pay off the old mortgage. So it's one less thing to deal with. In theory the fewer parties involved with closing, the faster you can close. In practice, the buyer will probably want a 30-day close to allow time to nail down their financing, so removing your mortgage from the picture won't save any time. I suppose it's possible that having one less party involved in closing will slightly lower various fees. But in all likelihood, it wouldn't.
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Apathizer
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Re: Is There Any Benefit to Paying Off a Mortgage Before Selling?

Post by Apathizer »

delamer wrote: Sun Mar 27, 2022 2:00 pm If you still have a mortgage at settlement, the funds to pay if off will be disbursed to the loan holder after the settlement. You’ll need to get the payoff amount, and provide it and other loan information to the settlement company.

A very minor hassle.

If you might end up purchasing a new-to-you home with a mortgage before selling the old one, then it’s better not to have a payment (on the old house) in terms of qualifying.
Nope. I'm takin' the money and returning to the blissful simplicity of renting. I don't want to pull myself out from under the crushing psychological burden of one ownership situation just to put myself under another burden.
shess wrote: Sun Mar 27, 2022 2:01 pm
Apathizer wrote: Sun Mar 27, 2022 1:53 pm I plan to sell my home in about a year. My mortgage balance is ~$17K. I can probably pay off the mortgage before selling my place. I'm trying to figure out if there's a financial or other practical advantage to doing so. Any constructive info and input is appreciated. :happy
In closing you'll have to pay off the old mortgage. So it's one less thing to deal with. In theory the fewer parties involved with closing, the faster you can close. In practice, the buyer will probably want a 30-day close to allow time to nail down their financing, so removing your mortgage from the picture won't save any time. I suppose it's possible that having one less party involved in closing will slightly lower various fees. But in all likelihood, it wouldn't.
Thanks, that seems mostly consistent with what others have said. Paying it off might reduce fees slightly and simplify the process; that's about it. Yes, the total remaining interest left if I pay on schedule is only about $800, so that wouldn't offer much benefit either.

And doing it all at once might be simpler. If I pay it off first, then the deed and everything else would be transferred to my name. Then if I sold it a month later it would need to be transferred again whereas if I still have a small balance everything would be transferred at once.
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suemarkp
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by suemarkp »

It could make a confusion factor if you do it too close to selling. It may take a month or two to pay off your loan (they pick a date, calculate the interest for that date, your check needs to get to them prior to that date). Eventually they send you docs that you are paid off and they record that on your deed so you own it. Entire thing could be 3 months. Could be less or longer.

You said you plan on selling in a about a year which is plenty if you do it now. But if you start the process, and then decide very soon after you want to sell, you could have a Closing confusion factor if it sells quick with a loan that is in process of being paid but isn't completed yet.
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JoeRetire
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by JoeRetire »

Apathizer wrote: Sun Mar 27, 2022 1:53 pmI'm trying to figure out if there are any financial or other practical advantages to doing so.
You would avoid paying one year's worth of interest payments.

Other than that, there's absolutely no benefit.
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59Gibson
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by 59Gibson »

If I had a 17k balance regardless of selling soon or not, I'd pay it off just to avoid the lender held escrow account. I prefer to have control of paying the RE taxes. Many lenders pay semi annual and you miss the discount for pif.
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9-5 Suited
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by 9-5 Suited »

We did this by accident. Paid off a mortgage and then unexpectedly moved for a job opportunity less than a year later. I would say it made virtually no difference except there were a few forms we got to draw a big "N/A" through when it came to paperwork time because they asked for information about our current loan/lender.

Other than that, the money came out of our checking account and then directly back from whence it came when the place was sold.

Some real estate agents have mentioned that a mortgage free property can be an advantage for the seller because there's a credible perception that you won't care as much about letting the house stay on the market longer due to the lack of outgoing cash flow. But I think that's a pretty marginal and situation-specific claim. Homes are going fast lately, as many a thread will attest, regardless of the owner's financing status.
Ready3Retire
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by Ready3Retire »

I did this last year prior to selling my house. No issues. If you do this, suggest doing it at least 2-3 months prior to sale. This will allow time for your lender to send the lien release to your city/county to show you own the house outright. You’ll also want to request a Discharge of Mortgage document from your Register of Deeds for your records.
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by LittleMaggieMae »

Apathizer wrote: Sun Mar 27, 2022 1:53 pm I plan to sell my home in about a year. My mortgage balance is ~$17K. I can probably pay off the mortgage before selling my place. I'm trying to figure out if there are any financial or other practical advantages to doing so. Any constructive info and input is appreciated. :happy
If you decide to pay it off - I'd do it sooner than later. It might take 3 or 4 months for all the paperwork/documents to get processed. You want to have all that completed and the paperwork/confirmation in your hands before you go thru the selling the house process.

(if you pay it off the month or two before your closing/sale to a new owner - I can total see how some confusion may occur - as the public record documents that the lender, attorney, title company may be looking at - may NOT reflect that you no longer have a mortgage/own the house free and clear. While I find dance of bureaucracy entertaining - I'm often amazed by how slow it goes and how quickly things can get out of step. You may also need the official "lendor loan pay off letter" you will get from your lender (which might take some time) )
LittleMaggieMae
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by LittleMaggieMae »

If you pay it off - you will need to make sure that you get a Property Tax bill and pay the property tax bill yourself. (you may want to mark your calendar and not rely on a paper bill arriving to remind you to pay it). You will also need to pay any insurances(s) when they come due. Your lender will send you a check (most likely) for the amount you have in escrow. And then it's all on you. :)

I would also print out any statements or other documents about your loan from your lenders website - once you start the pay off process -you may not have access to those statements anymore. (so you might not be able to go back to a bank statement to see how much you paid in property taxes or insurances in the previous years - you'll have to find that info somewhere else. )

I continued to bank with the lender that had my mortgage - when I paid off the mortgage I was annoyed that I lost access to the online statements for it - I had done everything online so I didn't have any of the "statements" - I needed to find how much in taxes/insurance (and WHEN) from the previous year) and thought signing in would be a quick way to do it... not so much.


When you SELL your house - some of the proceeds of the sale will go to cover the property taxes you owe. I pay "last year's taxes" so if I sell my house now - I will owe taxes from last year that I haven't paid yet (and some taxes from this year). It's confusing... maybe not everyone's property tax works that way....
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by drk »

59Gibson wrote: Mon Mar 28, 2022 4:08 pm Many lenders pay semi annual and you miss the discount for pif.
You get a discount for paying your taxes in one go?!
59Gibson
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by 59Gibson »

drk wrote: Mon Mar 28, 2022 5:46 pm
59Gibson wrote: Mon Mar 28, 2022 4:08 pm Many lenders pay semi annual and you miss the discount for pif.
You get a discount for paying your taxes in one go?!
I should have worded that differently, technically not a discount. There are interest charges if paid on semi annual basis, paying the full amount in 1 installment excludes interest and penalties.
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by drk »

59Gibson wrote: Mon Mar 28, 2022 6:18 pm I should have worded that differently, technically not a discount. There are interest charges if paid on semi annual basis, paying the full amount in 1 installment excludes interest and penalties.
Interesting. Basically a discount for paying the second half early, then. I wonder how common that is.
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Apathizer
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by Apathizer »

So it sounds like other than maybe saving a little bit on transfer/sales fees, there's not a significant benefit. But if I pay it off then I'd have to go through the red-tape/inconvenience of getting everything transferred to my name, then transferring everything to the new mortgagor with the sale.

As I said, if I make scheduled mortgage payments the total interest I have left to pay is only about $800 over about 2.5 yrs I think. I don't consider that a huge cost, so I'll probably just make normal or only slightly accelerated payments for simplicity. In about a year my balance will be so small, for practical purposes it will be mostly like selling it as if I owned it free and clear, and all the transferring would be done in one fell swoop.
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Topic Author
Apathizer
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Re: Are There Any Practical Benefits to Paying Off a Mortgage Before Selling?

Post by Apathizer »

Well, my taxable account is now almost twice as much as my mortgage balance, so I now feel comfortable paying most of it off just before sale. Next month I'll make one more principle prepayment; afterwards if I just make on-time payments it would be paid off October of next year. I plan to sell next summer, so in practical terms it will be like selling a paid for home without the paperwork hassle of having it transferred twice a year.
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