Do You Still Pay Mortgage When Selling Your House?

When selling a home, understanding ongoing mortgage obligations is important. The selling process often takes several weeks or months from listing to closing. During this time, homeowners must manage their existing mortgage. This article explains how mortgage payments are handled during a sale, how the loan is paid off, and options for concurrent homeownership.

Mortgage Payments During the Selling Period

Homeowners remain responsible for their mortgage payments throughout the entire selling process until the official closing date. This is because the seller retains legal ownership of the property until the title transfers to the buyer. Lenders require all payments to be current until closing, so regular monthly payments must continue as scheduled, even after an offer has been accepted.

The duration of these payments typically ranges from 30 to 60 days after an offer is accepted, which is the usual timeframe for closing. Maintaining timely payments is important to avoid negative impacts on your credit score, which could complicate future financial endeavors, including securing a new mortgage. Failure to stay current could lead to lender penalties and jeopardize the sale.

The Mortgage Payoff at Closing

At closing, the existing mortgage loan is paid off using the home’s sale proceeds. Before closing, the seller’s mortgage lender provides a “payoff statement” or “payoff letter.” This document details the exact amount required to satisfy the loan on a specific date, including the remaining principal, accrued interest, and various fees. Since interest accrues daily, the precise payoff amount is time-sensitive and valid only until a specified “good-through” date, often a few days beyond the scheduled closing.

The closing agent, typically a title company or attorney, manages the financial aspects of the transaction. They collect the buyer’s funds and disburse them, ensuring the seller’s mortgage is paid directly to the lender from the sale proceeds. Once the mortgage is paid, the lender is legally obligated to remove the lien from the property’s title, clearing it for the new owner. Any remaining funds after the mortgage payoff and other closing costs are then released to the seller.

For sellers with an escrow account for property taxes and insurance linked to their mortgage, any remaining balance is refunded. This refund occurs within 20 to 30 business days after the mortgage is paid off, as lenders are required by federal law to return surplus funds. The lender will issue a written notice of the loan closure and the refund amount.

Managing Concurrent Mortgages

A common situation arises when a homeowner purchases a new residence before their current home sells, leading to a temporary period of carrying two mortgages. While possible, this scenario involves increased monthly expenses and requires careful financial planning. Lenders assess a borrower’s ability to afford both mortgage payments based on their combined debt-to-income ratio and overall financial stability.

To navigate this overlap, some homeowners use strategies like bridge loans. A bridge loan is a short-term financing option that provides funds for a down payment or to pay off the existing mortgage on the old home until it sells. These loans are secured by the equity in the current home and are repaid once that home’s sale closes. Bridge loans come with higher interest rates and fees compared to conventional mortgages due to their short-term nature and associated risk.

Alternatively, some sellers time their closing dates to align closely or negotiate a “rent-back” agreement with the buyer of their old home. A rent-back allows the seller to remain in their sold home for a specified period, paying rent to the new owner, providing flexibility to move into their new property. This approach can alleviate the pressure of carrying two mortgages simultaneously.