You’re gathering information to list your house so you contact your mortgage company’s service center for loan information. Their representative tells you how to obtain your loan payoff balance and then adds, “Don’t worry. The closing agent will collect the prorated principal and interest due on the loan as of the date of closing”.

You hang up the phone, thinking, “Wow, this is great. No mortgage payments due until the sale closes!” Unfortunately, thousands of sellers fall prey to this misconception, causing negative repercussions to the loan, the closing and even, perhaps, the sale. If this practice were permissible, every home owner would keep his home listed indefinitely just to sidestep making mortgage payments!

There are four solid reasons why keeping your mortgage payments current makes good financial sense even when a sale appears eminent:

1. Possible foreclosure:

Depending on how many payments you skip, the house could be in foreclosure before you get to the closing! It’s true that the mortgage payoff will be calculated as of the closing date, but that doesn’t mean that you can forego making months worth of payments in the meantime. Most lenders would only allow this approach if a closing were anticipated before a second payment came due. To obtain this blessing, the consumer should make sure the waiver promise is reduced to writing and signed by the lender.

If a consumer has skipped one or more payments awaiting a sale to close, he should contact the lender immediately. This should be a mortgage loan officer, not someone providing loan information in a service center. Once the misunderstanding is explained, the lender may be willing to discuss payment arrangements especially if the sale closing date is fast approaching.

2. Blemished credit:

The delinquent payments can damage your credit picture, especially critical if you seek another mortgage. At the very least, you’ll spend valuable time and effort documenting to potential creditors that you misunderstood the importance of keeping the payments current until closing;

3. Non-competitive interest rate and fees on your next mortgage:

Past payment performance on your current mortgage can greatly impact your ability to obtain another mortgage, especially a cost-effective one. You could find yourself with interest rates two or more percentage points hire than average and/or you could be asked to pay excessive discount points in order to obtain any loan. This could amount to tens of thousands of dollars in additional costs over the life of the loan; and/or

4. Mounting late fees:

Even if you’re lucky enough not to have your credit blemished by the late payments, you’ll be hit with hefty late fees on top of the payments owing. This could take a huge dent of cash out of the sales proceeds you’re anticipating.

While you may be tempted to make that mortgage payment a low priority since you’re selling soon, don’t. Slacking off now could end up costing you thousands more in the future.

Published: January 5, 2001

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Julie Garton-Good, DREI “The Frugal HomeOwner™” As a syndicated newspaper columnist, author and international speaker, Julie Garton-Good DREI, C-CREC™, is called “America’s Home Affordability Expert”, addressing more than 25,000 persons annually on topics of real estate industry trends and home affordability. She is the author of five real estate books and is the sole two-time recipient of the international "Real Estate Educator of the Year" award from the Real Estate Educators Association. In 1997, The National Association of Realtors® nominated Julie as one of the fifty most influential people in the real estate industry. She shared the list with only three other women.