Do I Need to Tell My Mortgage Company If I Sell My House?

Selling a home with an outstanding mortgage involves a structured process. Understanding the steps related to your mortgage is an important part of the sale. This guide clarifies the procedures and interactions with a mortgage company when a property changes ownership.

The Due-on-Sale Clause

Mortgage agreements typically include a “due-on-sale clause,” which stipulates that the entire outstanding loan balance becomes immediately due and payable upon the sale or transfer of the property. This means the lender has the right to demand full repayment when ownership changes. Its purpose is to protect lenders, ensuring they can recoup their investment and issue new loans at current market interest rates.

This clause is the reason why the mortgage company must be involved in the home sale process. The existing mortgage is paid off as part of the sale transaction. Without such a clause, a buyer could assume a mortgage with an interest rate below the market rate, which lenders aim to prevent.

Preparing for Mortgage Payoff

Obtaining an accurate payoff statement from the mortgage company is an important step. This document details the exact amount needed to fully satisfy the loan on a specific date, encompassing the remaining principal balance, accrued interest, and any applicable fees. The payoff amount will differ from the regular monthly statement balance because interest accrues daily, and additional fees may be included.

Homeowners can request this statement directly from their mortgage servicer, often through an online portal, a phone call, or a written request. Information such as the loan number, property address, seller’s name, and the anticipated closing date will be required. The closing agent, such as a title or escrow company, frequently handles this request. It is important to request the payoff statement close to the projected closing date, as the amount is only “good through” a specific expiration date, usually 10 to 30 days, due to daily interest accrual.

The Mortgage Payoff at Closing

At the closing table, the mortgage payoff is a financial transaction managed by the closing agent. This agent (title company, escrow company, or attorney) oversees the transfer of funds and ensures all financial obligations are met. They receive the buyer’s funds, which include the purchase price and any new loan proceeds, into an escrow account.

The closing agent then disburses these funds by deducting the exact payoff amount from the seller’s proceeds and wiring it directly to the existing mortgage lender. Once the mortgage loan is paid in full, the mortgage company is obligated to release the lien on the property. This is accomplished by providing a legal document, often called a “satisfaction of mortgage” or “deed of reconveyance,” which is then recorded in public records. This recording officially clears the property’s title. The seller’s responsibility involves ensuring the closing agent has all necessary information and that the payoff process is completed accurately.