Any issues with this plan? does the iMac need a physical drive attached to SATA cable?
While many left some useful advice, I don't think anyone answered your actual question.
AFAIK, the OEM HDDs still have an internal temp sensor that if the HDD is pulled or swapped with something other than an Apple OEM drive, then the OS will make the fans run on full blast.
This can be avoided many different ways. The two most common is adding a SATA connector with an external temp sensor on it, or using SW to control the fan speed, such as Macsfancontrol.
Personally, I would just use the SATA temp sensor adapter, it isn't that expensive.
There are other ways as well, such as jumping/shorting the two leads for the temp sensor, or wiring your own temp sensor.
I intend the pull the SATA cable out as well.
Well, this limits what you can do, but you can still potentially short the leads on the other side of the SATA cable, or just use a SW solution.
i'm about to open my Late 2012 iMac 27" to replace the fusion HD with a single 1TB blade SSD (w/Adapter).
As others has mentioned, there isn't any advantage of using a faster SSD to replace the blade SSD on the Late 2012 iMacs. They will only run at 6Gbps.
I won't stay that there is not reason to do it, because if you already had the parts sitting around and wanted to use them, I guess that could be a reason, but there will not be any performance advantages to doing it.
The fastest non-RAID drive setup possible on the Late 2012 iMac is using an external NVMe over Thunderbolt 3.
If you really wanted to keep everything internal, you could also do a RAID0 setup with the internal blade SSD (or SSD with adapter) and replacing the HDD with a SATA SSD. This would be faster than the external TB3 drive.