Should I Make the Last Mortgage Payment Before Closing?

Homeowners preparing to sell or refinance their property often face a common question regarding their mortgage: whether to make the final regular payment before the transaction closes. This uncertainty arises as the closing date approaches, creating a dilemma about the timing of the last payment. Understanding the procedures and financial considerations involved can help property owners navigate this period with clarity.

The Mortgage Payoff Process at Closing

During a real estate closing, the mortgage payoff is a managed process handled by the designated closing agent. This agent, who could be a title company, an escrow officer, or a real estate attorney, ensures the existing mortgage is fully satisfied. The closing agent obtains a payoff statement from the mortgage lender, detailing the exact amount needed to clear the debt on the day of closing.

The closing agent verifies the payoff amount and, as part of the settlement, disburses funds directly from the sale proceeds to the mortgage lender. This direct transfer ensures the mortgage is paid off on the closing day, preventing any liens or claims against the property. The homeowner typically does not directly handle the final mortgage payment at closing, as it is managed by the closing agent to ensure a clear title for the new owner.

Financial Implications of Your Last Payment

Making your regular mortgage payment when a closing is imminent can have financial consequences. If you make the payment before closing, it reduces the outstanding principal balance of your loan. This means the closing agent will pay a lower amount to your lender at settlement, potentially increasing the net proceeds you receive from the sale or reducing the funds you need for a refinance.

Conversely, if you do not make your regular payment, the closing agent will be responsible for paying the higher payoff amount from the sale proceeds. This amount will include accrued interest for the period the payment would have covered, and potentially any late fees if the payment was due and missed prior to closing. Overpayment can occur if a regular payment is made very close to the closing date. Lenders typically process refunds for any overpaid amounts within a few weeks after the mortgage is satisfied and the account is closed. The final settlement statement, often a Closing Disclosure or HUD-1, will detail the exact payoff amount applied against your proceeds.

Understanding Your Mortgage Payoff Statement

The mortgage payoff statement is a document from your lender that provides the amount needed to satisfy your loan on a specific date. This statement includes the remaining principal balance, any accrued interest up to the specified payoff date, and other charges such as late fees, prepayment penalties, or unapplied funds. It also specifies a “per diem” interest amount, which is the daily interest accrual, allowing the closing agent to calculate the exact payoff amount for any given day near the closing date.

This document is important because it prevents both overpayments and underpayments, which could complicate the closing process or delay the release of the mortgage lien. Relying on an official payoff statement ensures the correct funds are disbursed.