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I would like to know generally about paying off a mortgage when selling a property.

If a mortgaged property is sold, is it possible to pay the remaining monthly payments of a mortgage instead of cancelling the mortgage and paying the early repayment fee?

Edit: Thanks for the answers. I had meant if there was, say, 25 years left on the capital-repayment mortgage but only, say, three months left of the fixed-rate five-year term.

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    This varies substantially depending on where you are. A location tag might be helpful. Nov 16, 2022 at 18:46
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    Have you even calculated your total combined monthly payments to see how it would differ from the prescribed penalty of prepayment? I would be shocked if this would be cheaper for you, unless you are in a jurisdiction that completely lacks consumer protection for mortgages. Nov 16, 2022 at 21:09
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    Can you say what difference you see between paying the remaining monthly payments of a mortgage and cancelling the mortgage and paying the early repayment fee? Nov 17, 2022 at 17:27
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    @010110001000, maybe you should clarify what you meant with "pay the remaining monthly payments": pay the remaining amount at once (as I understood it) or continue paying until the contract is fulfilled and the loan is paid off (as others seem to understand it)?
    – glglgl
    Nov 18, 2022 at 7:48
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    Editing to add united-kingdom and providing crucial information has made most existing answers irrelevant :/ @010110001000 please put changes to the question in the question not in the edit summary!
    – AakashM
    Nov 18, 2022 at 16:42

7 Answers 7

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Short answer: Ask your bank.

In the United States, most mortgages do not have a prepayment fee. Contact the bank and ask them for the payoff amount. This should be the remaining principal plus interest for the partial month since your last payment, and that's all.

If your mortgage does have a prepayment penalty, it will be substantially less than the sum of the interest payments on all future payments. Like if you have 50 payments left, then even with a prepayment penalty the payoff amount should be substantially less than 50 times your monthly payment. You don't want to do what you're suggesting. It would cost you a lot of money. The bank might cheerfully agree to it to get more of your money, or they might honestly tell you that you can pay off the loan for a lot less than that.

So really, just call the bank and ask for the "payoff amount" on the mortgage and they'll tell you what it is.

If you have a realtor or lawyer or some other professional managing the closing, at closing they will take the payment from the buyer, pay off your mortgage, pay off any other transaction costs, like realtor fees and taxes and unpaid utilities, and then give you whatever is left.

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    Upvoted. I have no idea how high prepayment penalties are if they are imposed but in the last few years mortgages with annual interest as low as around 1% were given out. With such a mortgage a prepayment penalty of say 5% of the remaining principle might be enough to make it worthwhile to continue paying the mortgage.
    – quarague
    Nov 17, 2022 at 14:20
  • I live in a country with an abusively powerful bank lobby where repayment fees are ubiquitous, and even here they don't apply in the event of a normal sale to an independent third party.
    – Affe
    Nov 17, 2022 at 17:12
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    @quarague If the prepayment penalty is 5%, and that flat rate applies at any time during the loan, then yes, paying off early in the last 5 years of the loan would cost you more. But I've never heard of a prepayment penalty that worked that way. In the US they normally either, (a) apply only during the first few years of a loan, or (b) are a percentage of the remaining interest payments. Any loan contract I've ever seen, you ALWAYS save money by paying the loan off early. I did a brief search to find what common terms for prepayment penalties in the UK are and couldn't find anything. ...
    – Jay
    Nov 17, 2022 at 23:42
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    ... Maybe in the UK there are circumstances where the prepayment penalty would come to more than paying off the loan on the regular schedule. So sure, ask the bank what the payoff amount is. If it actually comes to more than the total of remaining payments, then I guess the OP's idea would be a viable plan. Frankly I doubt this would be the case, but I've never gotten a loan in the UK, so I can't swear to it.
    – Jay
    Nov 17, 2022 at 23:45
  • Thanks for all the answers. My question related to the UK and when coming to the end of a fixed-rate term (e.g. 3 months left of a 5-year term), but not coming to the end of the full mortgage term (e.g. 25 years left).
    – user120113
    Nov 19, 2022 at 7:20
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If a mortgaged property is sold, is it possible to pay the remaining monthly payments of a mortgage instead of cancelling the mortgage and paying the early repayment fee?

When you get a mortgage the lender is on the title/deed and the paperwork is filed with the local government. The paperwork you sign puts a lien on the property. If you fail to pay the mortgage the lender can seize the property, and sell it to get their money back. The house/property is the collateral for the loan.

Under you scenario one of the following would have to happen:

  • the new owner would be OK if your lender seized the house when you missed a few payments. They would need to put this in writing. Their lender would also have to agree to this.

or

  • your lender would have to agree to sue you in court to get the rest of their money if you missed a few payments. They would have to put this in writing.

You will probably find a document within the papers you signed that says the money is due on sale of the property.

Paying the balance you owe, will be the only way your lender will agree to releasing the mortgage.

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    Option 3: pay all the remaining monthly payments immediately (which is how I parsed the question the first time around)
    – Joshua
    Nov 16, 2022 at 17:43
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    I can't imagine a lender agreeing to scenario 1 or 2. I also can't imagine a buyer agreeing to scenario 1 or 2.
    – Brian
    Nov 16, 2022 at 19:52
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    The lender is not on the title/deed. The deed runs from the seller to the buyer. In addition, the buyer executes a mortgage with the lender as mortgagee. That gives the lender the right to take the property if the terms of the mortgage (or the note that it secures) are not met. Nov 16, 2022 at 20:45
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    @Grade'Eh'Bacon: Seen it. (Usually comes up when there's only two payments left but I've seen it from a full mortgage.)
    – Joshua
    Nov 16, 2022 at 21:57
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    @PeteBecker: That can vary with jurisdiction. The question is now tagged "United Kingdom" - in which case the lender's interest in the property is registered with the property's title, at the Land Registry. In the days when paper deeds were still considered relevant, the lender would typically keep hold of the physical deeds; nowadays it tends to be all electronic.
    – psmears
    Nov 17, 2022 at 16:12
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The remaining monthly payments include both the remaining principal, and the interest on that principal for the remainder of the mortgage. When a mortgage has a "prepayment penalty", that means that you can end the mortgage early by paying the remaining principal, and the penalty. The penalty is charged in lieu of the remaining interest, and is smaller than that interest. It's not on top of the interest. Basically, it's a compromise between paying just the principal versus paying the principal plus the remaining interest. If you pay the remaining monthly payments, then you will have paid all the money you still owe to the bank, so you are free to do that. However, that will be more expensive than just paying the principal plus penalty.

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  • In order for it to be worthwhile for a lender to issue a loan, the lender will generally have to know that it will receive some compensation no matter how quickly the loan is paid off. This may take the form of upfront fees which would increase the borrower's cost for the loan even if carried to term, or prepayment penalty which would essentially behave as an originating fee that gets gradually retroactively refunded over the lifetime of the loan and would only need to actually be paid if the loan is terminated before the fee has been fully refunded.
    – supercat
    Nov 18, 2022 at 19:33
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You need to read the terms of your mortgage and call your lender to verify your understanding of the terms. However, I offer some generalizations below:

Most mortgages have no penalty for early payment. You pay off the balance (everything except interest) and that's it. The lender doesn't care if it's paid off because you worked 70 hours a week for three years or sold the home. I pay $200/month extra against the principal so my 30-year mortgage will be paid off in about 20 years and I'll save over $30,000 in interest.

If it's paid off via house sale then your lender gets their cut and you keep the rest. There should be no situation in which you receive all of the proceeds and are trusted to give the lender their cut; that would be foolish. Technically, the lender has a lien on the house so if you sell it without their knowledge/involvement then that's likely prosecutable.

Only predatory mortgages have an early repayment fee or expect you to pay all of the interest in order resolve the debt.

You might have become confused with refinancing or recasting (re-amortizing) a mortgage; these almost always come with fees.


Also, you gave me a good laugh with "cancelling the mortgage"; wouldn't that be nice!

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    Technically, I don't think the lender actually owns the house. However, they do have a lien on the house, which prevents it from being sold.
    – Brian
    Nov 16, 2022 at 19:55
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    Prepayment penalties are very rare in the US, but much more common elsewhere. OP does not give their location, unfortunately.
    – Michael W.
    Nov 16, 2022 at 20:30
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    In the UK, at least, it is common for mortgage providers to offer products with a 'fixed rate' for a defined period e.g. the first 5 years of a 25 year mortgage). Typically one pays penalty fees for terminating the mortgage within this period; in return, the homeowner gets certainty over their repayments and is insulated from interest rate changes (which may be a good or bad thing, depending on which way the market moves).
    – avid
    Nov 16, 2022 at 20:31
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    The house does not belong to the lender. It belongs to the buyer, and the lender has a mortgage ("death promise") from the buyer that they will pay the loan; if they don't, the lender can take the property. Nov 16, 2022 at 20:43
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    @DJohnM Have you done the math? Could you, with 100% certainty, recommend an investment to me with better ROI than the guaranteed savings of paying extra against my principal?
    – MonkeyZeus
    Nov 17, 2022 at 13:28
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If a mortgaged property is sold, is it possible to pay the remaining monthly payments of a mortgage instead of cancelling the mortgage and paying the early repayment fee?

TL;DR: maybe, but you probably don't want to do.

You say "the" early payment fee, but it is not necessarily the case that any such fee is applicable at all. Some mortgages never have one in the first place. Many that do have such a fee have it only early in the mortgage period. The details vary with local law and custom, and with what kind of deal you make when you take out the loan.

Depending on your location, it might indeed not be possible to pay multiple regular payments early. For example, lenders may be required by law or by policy to accept payments above the amount due in any given payment period as payments directly against principal, instead of early ordinary payments.

With adjustable-rate loans, it is impossible to pay off the remaining monthly payments (principal plus interest) sooner than the final adjustment because you don't know what the payments would be. Paying the current payment times the number of remaining payments is not the same thing. During most of the life of the loan, however, even the latter probably would not be to your advantage relative to paying just the outstanding principal plus any early payment penalty. I would expect the extra interest paid almost always to exceed any penalty that otherwise would apply.

Similar applies to fixed-rate loans, though this case is simpler. Even if it is technically possible, it is unlikely to be financially to your advantage to pay the total of the remaining monthly payments in lieu of paying just the outstanding principal plus any applicable early payment penalty, at least until very late in the loan term.

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As a more practical answer to your question…

If you are doing a “for sale by owner”, you should at some time be engaging a closing attorney, that will help you resolve any issues you have. If you have a sellers agent, they will arrange for everything, including the closing attorney, and any questions you have should be directed to the sling agent.

To answer your specific question: the closing attorney will escrow all of the closing funds from both parties and then distribute the funds as agreed. It is impossible to believe a commercial lending institution would allow their lien to be removed without having been paid.

You may be thinking of a lease to own situation, the key to that is that it is a contract for an option to buy in the future at a calculated priced, not a current sell. The lease holder is not an owner, can’t use the house as collateral and has no equity in the house.

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A mortgage allows the bank to force a sale of your home to get their money back if you stop paying. Obviously if they tried that after you sold your home let's just say that the next owner would be very unhappy.

It might be possible if your bank agrees to lose the lien on your home, which the bank might do if there are only a few payments left and the risk for the bank isn't too high. But I doubt that any bank would agree to that. On the other hand, early repayment fees shouldn't be high in that situation.

For a long term mortgage, say 9 years into a 25 year mortgage, not a chance.

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