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I'm still about 5-6 years away from paying off my mortgage and I want to cash out and move to another country to retire early. Just for curiosity sake, is it better for me to pay off my mortgage and sell or sell before I fully pay off my mortgage so that the bank would handle the transfer and collecting of the funds and paying me back for the difference? I understand that I will pay for part of the costs but is it better to let the bank do the legwork? Appreciate any inputs!

  • Can you add a (current) country tag? – TTT Jun 25 at 21:17
  • I agree, we need a country tag to provide a relevant answer. Also, what do you mean by "better?" Do you mean cheaper, or easier, or something else? And are you concerned about any other factors, such as if the difference impacts speed of sale, market reaction, pricing, etc.? – dwizum Jun 26 at 13:17
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    I doubt it makes a difference. the escrow company is just going to pocket the extra money (very tiny amount) that they would have to spend to transfer money to the bank to pay off the mortgage. I highly doubt it would save a significant amount of money in any country to pay off the mortgage early (other than direct mortgage interest/associated costs) – xyious Jun 26 at 18:50
  • Los Angeles, California USA. Didn't know there was a country tag. My first question on this forum. I'm not concerned about speed of sale or anything like that. Just wondering if it's just easier to sell while I owe a little bit and let the bank take care of the transfer since I don't know what the process will be if I own outright and need to take care of finding escrow company,... – Quang B Jun 26 at 22:05
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If you are selling you home via a realtor, they can usually recommend a title & escrow company. After the title & escrow company are involved, they should take care of most of the paperwork on actually handling the transfer. So the bottom line is there probably isn't a big difference. There would probably be slightly fewer forms to sign if you've already paid off the mortgage, but not a significant difference.

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    Also if you do decide to pay it off before selling, then you have to take into account the delay between sending the check for the final payment and when all the paperwork works it way though the system. If you pay after the buyers title search they will show that the mortgage exists, and that will cause more paperwork. – mhoran_psprep Jun 27 at 20:36
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You asked,

is it better for me to pay off my mortgage and sell or sell before I fully pay off my mortgage so that the bank would handle the transfer and collecting of the funds and paying me back for the difference?

There are many aspects to this question, based on the different types of activities that take place during a home sale.

Assuming you will be in a conventional transaction with a real estate agent, a title company, a real estate lawyer (of your own, plus the buyer's), and at least one bank (even if your mortgage is out of the picture, the buyer will likely be financing and thus will have their bank involved), the processes roughly break down as follows:

  • A buyer will present you with a purchase offer which you'll accept. The offer will include the price they want to pay, plus any adjustments or other factors (i.e. they want a $500 kickback to account for replacing carpet in the master bedroom, or something). The offer will describe how they're financing the purchase, and it will list any contingencies (i.e. sale of their home, or a homeowner's inspection, etc) The offer will have a target closing date (which is very much a rough target at this point). That closing date will drive the scheduling of the following steps.

  • Title search and processing will be handled between the lawyer(s) and title search firm. The buyer will be required by their bank to make sure the title comes up clean, i.e. no one has any claim on the house except you (and potentially your bank). And of course, as of the closing, the title will be transferred to the new owner with their bank's lien listed on it.

  • Coordination of an appraisal will be handled via the buyer's bank (they will want to make sure the house is worth what the loan is written for).

  • Coordination of any inspections required will be handled by the buyer and/or the buyer's agent

  • You and/or your lawyer will get property tax records and determine if any money has to change hands on the basis of tax cycles (i.e. if you've paid your property tax through the end of the year, the buyer will reimburse you for that). This info will be provided to the buyer to use as their side prepares the closing paperwork.

  • The buyer, their lawyer, and their bank are essentially responsible for determining the details of the transaction in terms of exactly what money changes hands, where the money comes from, and how it moves. Besides paying you (and/or your bank), the buyer will be paying many other costs - government fees, taxes, escrow deposits for property taxes and homeowner's insurance, title processing, title insurance, mortgage fees, prepayment or re-payment of property taxes, paying commission to the real estate agents, and so on. You having, or not having, a mortgage is ultimately just one detail in a giant list of all the money changing hands. Typically, the buyer's side of the transaction is responsible for the bulk of the effort in terms of preparing for the closing.

Your mortgage, if it still exists, will come into play in a few ways:

  • It'll show up on the title search. Since we can assume you've disclosed your mortgage, this won't ring any alarm bells, and the contract will be written to account for your bank releasing their claim as part of the transaction. The title process is often the "long straw" in terms of scheduling the closing - if you don't have a mortgage, it may go faster, which can mean a quicker closing. But there are often surprises during title searches (i.e. someone who lived in your house 40 years ago had a mortgage with a bank that got bought out and the lien never got released properly) - not having a mortgage isn't inherently a guarantee that the title will transfer painlessly. And since your mortgage bank will already be actively involved in the transaction, them being on the title isn't really going to slow things down.

  • Your bank will describe in a payoff document how much they need to be paid based on the closing date, and will typically also describe the other terms of the payment (i.e. what form of payment they will accept).

  • The closing paperwork will be written to account for who gets what money at the actual closing. Typically, this happens between the lawyers and the buyer's bank, and they will need that payoff documentation from your bank to account for who gets what amount. Ultimately, the buyer will get a Closing Disclosure a few days before the closing that itemizes every factor in the transaction, including "seller's bank gets a check for $X and seller gets a check for $Y."

  • At the actual closing, the buyer's bank will submit payment to your bank, if your mortgage still exists, and/or directly to you. All parties involved (buyer, seller, one or both banks) will have someone representing them at the table, who will be handling their own interests. And, generally, all parties receiving funds will receive them directly. In some cases a third party escrow agent will be used, but in many cases, the buyer's bank simply writes checks to each party directly. If the buyer is making a downpayment, that money will usually go straight from the buyer to either you or your bank, depending on what's left on your mortgage. So, you may receive two checks - one from the buyer, and one from their bank.

Let's bring this back around to something you mentioned in your question:

sell before I fully pay off my mortgage so that the bank would handle the transfer and collecting of the funds and paying me back

Essentially, that's not quite how it works. Your mortgage bank is only going to want to handle their portion of the money. They won't want to collect the whole sale price and then give some of it back to you. At the time of the closing, any money owed to you will go directly to you, regardless of if you have a mortgage still or not. So, while you having a mortgage does change the process, it doesn't really make it "easier" in the manner you're implying. If anything, still having the mortgage at the time you sell makes things a tiny bit more complicated but it's a complication that's assumed to be the norm - the vast majority of real estate transactions involve paying off the seller's mortgage, all parties involved will be completely familiar and comfortable with that being part of the transaction.

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    I'm confused about your mention of real estate lawyers throughout the answer, as lawyers are rarely directly involved (or needed) in residential transactions in any jurisdiction I'm personally familiar with - but I have no experience of California. Even inside a title and escrow company, lawyers are not involved with individual transactions, especially not residential ones. Is there some jurisdiction where lawyers are needed for these sorts of residential transactions? – BrianH Jun 28 at 14:37
  • I wouldn't say lawyers are needed - just that in some areas in the US, it's very common to use them. I work for a financial institution that's located in the northeast, we probably see real estate lawyers on at least 80-90% of personal real estate transactions. They act much more like facilitators than actually playing any legal advisement role. In other areas in the US, some of these tasks are taken on by an escrow agent. You do make a good point that some of the roles are different from region to region. – dwizum Jun 28 at 14:43
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    Fascinating, I had not realized the involvement of lawyers varied so much within the US - my main experience is in the south and southwest, where if lawyers were ever involved they stayed in the background of residential transactions, never heard of a buyer or seller using one directly, and escrow and title didn't need them either. Learned something new! – BrianH Jun 28 at 14:48
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    Lawyers apparently aren't commonly used in the Midwest either. – topshot Jun 28 at 15:03
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Pros:

  • Less paperwork to deal with
  • Not paying interest between now and selling your home

Cons:

  • Early closure fees on your mortgage

Personally even if it cost a little more money I would take the simplicity of having one fewer bill to pay and less paperwork as a part of the home sale but that is 100% a personal value judgment.

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