Pay the mortgage or wait until it sells?
February 25, 2010 7:02 AM   Subscribe

We're currently under contract to sell a house soon. Should I go ahead and pay this month's mortgage on it or wait?

So we're selling this house, set to close in two weeks. This morning it occurred to me that if I go ahead and pay the mortgage for March, most of it (2/3s at least) is going straight towards interest. Would it save me money to skip this month when they're going to get a big fat check for the entire payoff amount in two weeks?
Related to this, is there a rule-of-thumb for figuring out my payoff amount? I know it'll be more than the remaining principal, but I have no idea how much more. $1,000? $10,000? Percentage of principal? The loan amount was for approx $93k, about $82k left of principal, and the house was bought in 2002 on a 30-year fixed rate at around 6%.

For simplicity's sake, assume there is no risk of the buyer backing out.
posted by ChrisLSU to Work & Money (11 answers total)
Your current mortgage holder will calculate the payoff amount. Often they will have a website that lets you calculate this.

You won't be able to get away without paying the interest for every day you hold the mortgage. I'd make the payment as scheduled to avoid any risk to your credit score. It's not like you'll benefit from having that cash in your bank account for an extra couple of weeks.
posted by alms at 7:10 AM on February 25, 2010

Hopefully others with more expertise will chime in, but in my experience of being in your shoes a few times I can say that it was made pretty clear to me that I needed to pay the outstanding mortgage payments. You will get the money back for the difference between the end of March and the date the loan was closed out. So if you're mortgage was $500, you'd get about $250 of it back. The fact that there is principal and interest involved is not really a factor, what is a factor is that you agreed to pay a certain amount every month while the loan is in effect.

The payoff amount usually is just the remaining principal, but the details are in your loan agreement, so you need to check that. Most loans do not have any pre-payment penalty, but some do so be sure to check your loan contract.
posted by forforf at 7:22 AM on February 25, 2010

The payoff amount for the mortgage is your remaining principal balance plus your outstanding interest, pro-rated for the month. Your mortgage holder will give you an estimate of your payoff amount, including a buffer for allowing checks to be mailed and to clear. It will likely be slightly higher than the acutal amount, and you'll get a rebate check for the remainder.

Not paying your March payment will mean that, come payoff time, there will be significantly more outstanding interest, as well as more outstanding principal, and your mortgage holder will simply add that payment onto your payoff amount, plus possible late fees.

In short: You will either pay your march payment when it is due, or you will pay it when you pay off the load entirely. Either way, you will pay it, and it will be mostly interest no matter when you do.
posted by coryinabox at 7:34 AM on February 25, 2010

If you don't make your payment you also may have to pay a late-payment penalty.
posted by alms at 7:50 AM on February 25, 2010

Make the payment. Sales fall through all the time, for all kinds of dumb reasons -- don't let that turn into a huge pain with late payment fees, etc.
posted by Forktine at 8:09 AM on February 25, 2010

As others have said, pay it. Also as one just having gone through a closing, recognize that the closing date you think is solid may be later than you expect due to things beyond your control. The payoff amount will accurately reflect any of those extra days' principal & interest for while you may still have the house.
posted by pappy at 8:09 AM on February 25, 2010

Pay it, you'll get a refund if you over-pay. If you underpay you might have to start over completely; since that takes time you still have to pay.
posted by jeffamaphone at 8:19 AM on February 25, 2010

Thanks for the advice, MeFites. I guess I was thinking to simplistically (I've never sold a house before).

I was thinking along these lines. Say an $800 monthly payment, with $600 of that going towards interest. Principal remaining at closing is $83K, full payoff of $85K. I make the payment, principal goes down by $200, but if the payoff doesn't go down by $600, then it'd seem to me the most advantageous thing to do would be to just skip the payment. From everybody's answers, it seems a lot more complicated than that. It seems like my mortgage company has everything under control

Thanks MeFites!
posted by ChrisLSU at 8:29 AM on February 25, 2010

The principal only goes down by $200 because most of your payment is the interest that you owe every month.

You don't stop owing them interest over the next two weeks just because you plan on selling up after that.

That's like saying, I'm moving out of my rented house in two weeks, should I just not pay my rent for the next month at all?
posted by emilyw at 8:48 AM on February 25, 2010

I think this is simpler than you think.

Mortgage interest is (usually?) paid in arrears, so the check you write in March pays for your interest in February and the prinicpal in March.

So you wouldn't save anything.
posted by ROU_Xenophobe at 8:58 AM on February 25, 2010

If your payments are In Advance for the next Month. Say you pay 800 now (600 Int + 200 Princ). But then you repay all the Outstanding principal in 2 weeks. Then at the repayment date your Interest will be adjusted pro-rata for the half month and that 600 will end up being 300 Interest + 300 Refund or 300 adjusted to reduce the principal.

ie the bank can't 'steal' the full 600 interest from you when you only have th emoney borrowed for a half month. they have to refund it in some sense when it all gets setttled early.

I would definately pay the normal mortgage amount for now and sort out the rest when you eventually settle and repay the rest of the loan. just to be on the safe side.
posted by mary8nne at 9:02 AM on February 25, 2010

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