This Week's Question

August 15, 2005

By Nena Groskind

Q:  How can a prospective buyer determine the size of the outstanding mortgage on a property, in order to assess whether an offer is realistic, given the amount the seller needs to clear in order to pay off the loan?

A:  You could simply ask the seller, but if you don't think you'll get an honest answer (or any answer at all), you can do a little simple sleuthing on your own. The amount of the mortgage on a property is a matter of public record and is included in the information filed at the Registry of Deeds when a mortgage is recorded. A review of the Registry documents will tell you how large a mortgage the owners obtained when they purchased the property, whether they have refinanced that loan, added another mortgage or obtained an equity line of credit secured by the property since then.

The Registry information won't tell you exactly how much of the principal balance has been repaid, but that is not hard to estimate. With a little library research, you can determine what prevailing mortgage rates were when the owners obtained their loan, and the mortgage document in the registry file typically specifies the period during which payments must be made. An amortization schedule will show you how the principal balance on a specified loan declines over time.

What you draw from this analysis will be a rough estimate, at best, because there are some key details you won't know unless the seller volunteers them — for example, whether additional principal payments have been made. While your estimate won't be precise, it should give you a general idea of the bottom line figure in the owner's mind and enable you to avoid offers that would, of necessity, be rejected out of hand. However, bear in mind that many sellers base the asking price for their homes not on the minimum amount they feel they can afford to accept but on the maximum they think they ought to be able to demand. Just because a seller "needs" to clear a minimum amount, for whatever reason, doesn't necessarily mean that's a sum you should be willing to pay.