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Paying off your mortgage when you sell

You don't need to pay off your mortgage before you sell. In most sales, the settlement agent pays your lender out of the sale proceeds at closing. Here is how that works, what can affect the payoff amount, and what happens to your escrow.

2 min read

Key takeaways

  • The settlement or title company requests a payoff statement and pays your lender from the sale proceeds at closing.
  • Your payoff amount is more than your statement balance, because interest is charged through the payoff date.
  • Second mortgages, home equity lines and liens are paid off from the proceeds too.
  • Keep making your regular payments until the sale closes.

Next step: See what your home is worth

How the payoff works

When you accept an offer, the settlement or title company handling your closing asks your mortgage servicer for a payoff statement. On closing day, they collect the buyer's funds, pay your mortgage and other liens, pay closing costs and commissions, and send you what's left. That remainder is your net proceeds.

After the payoff, your servicer marks the loan paid and the lien is released. Depending on where you live, a release document is recorded in the land records.

Why the payoff amount is higher than your balance

The balance on your monthly statement isn't the full payoff. Mortgage interest is usually paid in arrears, so your payoff includes interest from your last payment through the payoff date. It may also include small fees, such as a recording fee for the lien release. The payoff statement shows the exact amount and a good-through date.

What else gets paid at closing

  • Any second mortgage or home equity loan
  • Any home equity line of credit. Ask for it to be closed, not just paid to zero
  • Tax liens, judgments or contractor liens recorded against the home
  • Unpaid HOA dues or assessments
  • Your share of property taxes, depending on local custom and your contract

Check for a prepayment penalty

Some loans charge a fee if you pay them off early. Many common home loans don't have one, but it's worth checking. Look at your promissory note or ask your servicer. If there is a penalty, include it when you estimate your proceeds.

What if you owe more than the home sells for

If your payoff and selling costs are more than the sale price, you'll need to bring money to closing to cover the gap. If that isn't possible, talk with your lender early about your options. A short sale needs lender approval and can affect your credit, so get professional advice first.

Your escrow account and final steps

  • Your servicer usually refunds any remaining escrow balance after the loan is paid off. Timing depends on the servicer
  • Your homeowners insurance doesn't transfer to the buyer. Cancel it after closing and ask about a refund of any unused premium
  • Keep your closing documents and payoff confirmation
  • Watch for the lien release, and contact your servicer if it doesn't arrive

Frequently asked questions

Do I keep making payments while I sell?

Yes, until closing. Missing a payment can add late fees and hurt your credit, and interest is still charged through the payoff date.

What happens to my escrow balance?

Your servicer usually refunds the balance after the loan is paid off.

How do I get a payoff statement?

Your settlement agent usually requests it. You can also ask your servicer for one at any time.

Will I get the money from my sale on closing day?

Often on closing day or soon after, once the settlement agent has paid your loans and costs. Your settlement agent can tell you when and how.

Does a home equity line have to be paid off when I sell?

Yes. Any loan secured by the home is usually paid off at closing so the buyer gets clear title.

Can I sell if I owe more than the home is worth?

You can, but you'll need to cover the gap at closing or work out a short sale with your lender.

For general information only. Not tax or legal advice. CapCenter realty services in VA, NC, MD & DC.

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