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Pay off mortgage question - benefits at closing?
Old 10-02-2011, 11:16 AM   #1
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Pay off mortgage question - benefits at closing?

I was curious whether there are any benefits to paying off the mortgage and owning the title free and clear when it comes to selling the house and/or during the closing process? Other than saving on some interest and getting the whole check from the buyer, does being in this position offer any other advantages (i.e. does it reduce any closing costs, fees, searches, or other bureaucratic wranglings like inspections, etc?). We plan to put our house on the market soon and if we wanted to we could pay down the remaining balance now if there are benefits that may streamline the closing process.
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Old 10-02-2011, 11:27 AM   #2
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When I sold my house we didn't have a mortgage. It didn't save us anything in fees, but it sure did make a difference when the buyer brought up objections, during the negotiations and also during the closing. Somebody on his team (there were so many) tried to pull a fast one on us related to some charge. I just offered to postpone the closing until they all worked out their differences. Only took them a couple of minutes to work it out among themselves after that.

Not having a mortgage means you are the only guy in the room with flexibility.
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Old 10-02-2011, 12:52 PM   #3
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Originally Posted by MichaelB View Post
... I just offered to postpone the closing until they all worked out their differences. Only took them a couple of minutes to work it out among themselves after that.

Not having a mortgage means you are the only guy in the room with flexibility.
I'm not following how this helps? If you are in a position to walk away from the table (flexible with housing arrangements), what difference does the mortgage make? Wouldn't you just not process the payoff papers? I don't recall if setting that up was a big deal, but I didn't think it was. Just get the current pay-off amount from the lender?

If it's an advantage, I'd pay it off before closing. I might anyhow (not planning on selling now though, just filing away or future reference), even one less paper at closing would be a good thing.

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Old 10-02-2011, 12:59 PM   #4
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I'm not following how this helps? If you are in a position to walk away from the table (flexible with housing arrangements), what difference does the mortgage make? Wouldn't you just not process the payoff papers? I don't recall if setting that up was a big deal, but I didn't think it was. Just get the current pay-off amount from the lender?

If it's an advantage, I'd pay it off before closing. I might anyhow (not planning on selling now though, just filing away or future reference), even one less paper at closing would be a good thing.

-ERD50
When you have a mortgage you're not alone in the room during the closing, your mortgage holder is there, by your side but not on your side. When something comes up you may want to do "x" and the mortgage holder says "I don't agree' and now it gets complicated.
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Old 10-02-2011, 01:08 PM   #5
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As part of the requirements for closing on my last house (2009-2010), the bank needs proof that I do not have any mortgage on my existing house. They will not accept the credit reports, the recorders papers, the cancelled note, etc. And the mortgages are from the same mega bank. I don't know how this was resolved (and I just want to forget the whole thing) but this was really stressful.

For this reason, I suggest to pay it off during the closing.
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Old 10-02-2011, 01:29 PM   #6
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ERD, I agree that I don't see where not having a mortgage does anything for you at the closing table. It just makes it easier for the title company but that would be way before the closing. If you have a mortgage, the title company has to write a check to pay off that mortgage and get the equal funds from the proceeds of the closing. If you have no mortgage, that transaction is just non-existant. I can't think of one fee that is eliminated because the seller does or does not have a mortgage. The buyer has a lot of leverage if he is paying cash but I don't see where the seller has any leverage just because he is debt free.
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Old 10-02-2011, 02:59 PM   #7
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Originally Posted by kjpliny View Post
I was curious whether there are any benefits to paying off the mortgage and owning the title free and clear when it comes to selling the house and/or during the closing process? Other than saving on some interest and getting the whole check from the buyer, does being in this position offer any other advantages (i.e. does it reduce any closing costs, fees, searches, or other bureaucratic wranglings like inspections, etc?). We plan to put our house on the market soon and if we wanted to we could pay down the remaining balance now if there are benefits that may streamline the closing process.
I can't think of any benefits to paying off the mortgage before the sale. We usually give the title company a few hundred extra bucks in case the recording date is off a day or two (which can affect the mortgage payoff date), but that's returned when escrow is settled.

Payoff could actually work against you. When you pay off a mortgage, the payoff is recorded. It's not unusual for the recording staff to be a few months behind. So if there's a bureaucratic bottleneck between the time you pay off the mortgage and the date you try to close the sale, the title company may have a problem verifying that the property is free of liens.
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Old 10-02-2011, 04:13 PM   #8
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Note that you will also be asked at closing to certify that you have not taken any loans on the house that have not been recorded at closing.
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Old 10-02-2011, 09:10 PM   #9
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When you pay off a mortgage it can take months for the bank to process the paperwork so do it well in advance should you elect this option.
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Old 10-02-2011, 09:24 PM   #10
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When you pay off a mortgage it can take months for the bank to process the paperwork so do it well in advance should you elect this option.
I can attest to this with experience. I had a balloon come due about a month before closing. The paperwork (I think it was a release of lien) barely made it in time, and it was pretty stressful. Do it months in advance, or not at all.
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Old 10-03-2011, 05:57 AM   #11
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I would not do this. Why tie up the money for an unknown time? You don't even have it listed yet. All the closings I have been at are driven by the lender and their lawyers. They do it on their schedule and process regardless of what you do or say. They can easily handle any situation and will probably charge you the same no matter how easy you perceive to make it for them.
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Old 10-03-2011, 06:53 AM   #12
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Our last home was paid off about a month before its sale/settlement.

I simply asked the local S&L to give me a letter attesting to that fact, along with notification of our sales agent that the transaction was completed (for their settlement paperwork).

That was months before the deed/title would have been processed by the county, removing the lien of the S&L.

Of course, this was done directly with a local financial concern - not an out of state or mortgage broker situation.

No problem, at all. Instead of two checks at settlement (one to us, the other to the S&L), we received one - which we turned over later the same day to the same S&L to fund our construction loan draw account for our new/retirement home.
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Old 10-03-2011, 09:37 AM   #13
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Buying with cash will save a buch of $$ by eliminating all the bank closing fees. Amazing the garbage they throw in as closing costs.

Selling free n'clear hasn't saved as much.
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Old 10-03-2011, 11:33 AM   #14
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I can certainly see how being a cash *buyer* who doesn't need a mortgage would be in a good spot in terms of speed of closing AND in negotiating with the seller. I don't think the advantages of being a mortgage-free seller would be as strong.

When we were selling our home in Houston and moved here, rather than take a mortgage on this home until the Houston home sold, we took a HELOC on the Houston home and used that to pay cash on this one. It worked well in several ways: As far as this seller was concerned we had the negotiating power of "cash" buyers since we didn't need to apply for a loan using this house as collateral; the HELOC had no fees or closing costs and when the Houston home sold, both the first mortgage and the HELOC were neatly paid off. (It helped that this was in 2006 when the HELOC was in no danger of being reduced or taken away.)
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Old 10-03-2011, 11:47 AM   #15
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When you have a mortgage you're not alone in the room during the closing, your mortgage holder is there, by your side but not on your side. When something comes up you may want to do "x" and the mortgage holder says "I don't agree' and now it gets complicated.

They were not there when I sold... nothing complicated at all...

Maybe it is different in your state....
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Old 10-03-2011, 12:22 PM   #16
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When you pay off a mortgage it can take months for the bank to process the paperwork so do it well in advance should you elect this option.

Not only that.... but sometimes they do not file the release... that is what happened to me...


But, I had kept the paperwork they sent and just handed it to the title company long before closing... I think they filed it with the county....
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Old 10-03-2011, 01:59 PM   #17
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I was curious whether there are any benefits to paying off the mortgage and owning the title free and clear when it comes to selling the house and/or during the closing process? Other than saving on some interest and getting the whole check from the buyer, does being in this position offer any other advantages (i.e. does it reduce any closing costs, fees, searches, or other bureaucratic wranglings like inspections, etc?). We plan to put our house on the market soon and if we wanted to we could pay down the remaining balance now if there are benefits that may streamline the closing process.
i know you said "Other than saving on some interest" but with the very low CD rates doesnt it make sense (if you want guaranteed returns) to get 4% or greater returns for a year or so by paying off your mortgage if you know you are going to be selling your house in that time frame? i would think that rate of return would be very enticing over the next couple of years as the fed is going to keep interest rates low.
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Old 10-03-2011, 02:25 PM   #18
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It's interesting to hear what y'all have to say about paying off mortgages and getting it recorded. We're just starting the process of what I consider to be a refinance, but it isn't really. We have a mortgage on what is officially listed as our second home, and own our primary residence free and clear. When I tried to refi last year it fell through because it isn't our primary residence and they wanted to charge us a higher rate. It was our primary when we got the mortgage, but we switched it when we bought the other place.

So what I'm going to do this time is get a slightly smaller mortgage on the primary and pay off the secondary. This will reduce our payment both by having a lower rate and a smaller mortgage. I'm pretty sure I will have to pay off the existing mortgage before they will approve us for the new one, since we're retired with no visible means of support (except for the small mountain of cash and investments, but they tend not to count). It's all going to be with the same company, so hopefully it won't be too complicated. But I don't want to pay off the existing mortgage until I know I'll be approved for the new one. I wonder how this is going to play out?
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Old 10-03-2011, 04:59 PM   #19
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Wait until your Realtor tells you to cut the price because you don't owe anything on your home.

I heard that one once.
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