Selling a house before the mortgage is paid
You can sell your home at any time, even before your mortgage has been fully paid. It’s not uncommon for people to relocate before they have paid off their mortgage in full either. By selling your house, you’d receive a lump sum of cash that you can use to pay off your mortgage and if there is any remaining cash, you could even put that towards buying a new home.
If you do choose to sell your home before your mortgage has been paid in full, it’s important that you pay the remaining balance of your loan first. This guide will run you through all you need to know before deciding to sell a home with a mortgage.
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What do you need to consider before selling a house with a mortgage?
There are a number of considerations you should take into account before you sell your home without paying off your mortgage. These include:
- If you’re redeeming your mortgage (repaying the amount off in full) and not buying another property, the sale price of your property must be higher than the amount remaining on your mortgage loan.
- When you sell your home, the proceeds from the sale are used to pay off your existing mortgage loan. If you don’t make enough from the sale of your home to pay off your mortgage, you will have to continue making mortgage payments to the bank until the loan is paid.
- You are responsible for all mortgage payments, insurance and other household costs until the property has sold.
- When the property is sold, your existing mortgage loan will be repaid by your solicitor or conveyancer.
- Think about your income, especially after the sale of your property. If you’re out of employment and you receive a lump sum from the sale of the property, this might affect whether or not you can get benefits.
- If you have negative equity (you owe more than what your property is worth), selling won’t be the best option for you financially, and you should think about other options.
What is the process?
1. Consider how much you still need to repay
The first step in selling a house before the mortgage is paid, is to work out how much you have left to pay.
Your mortgage lender will want to make sure that your loan is paid in full before someone else moves into the property, and this will be their main priority.
You will need to organise a valuation of your property, as this will determine whether or not the sale of your property will be enough to cover your mortgage repayment. If it doesn’t, then you will need to ask your lender for permission to sell the property.
2. Repay your debt
After your valuation, if the amount your home is sold for is enough to cover the outstanding mortgage payments, then the next step is to sell your home. You may even be left with some extra cash after your debts are paid off.
The fastest and easiest way to do this is through a quick house buyer, like Good Move. We can sell buy and sell your home for cash, in as little as seven days.
If the amount your home is sold for is not enough to cover the outstanding mortgage payments, you will have to repay the debts yourself. This is called a mortgage shortfall. If you don’t pay off the mortgage shortfall and buy another property, then the lender of the property has the right to take legal action against you and you could be in a lot of legal and financial trouble.
If you are in a mortgage shortfall, you can consider a short sale. This is when the lender of your mortgage agrees to accept a reduced payoff amount to complete a sale of your property.
3. Find somewhere else to live
If you are selling your home, then the next step is to find a new place to live. If you have trouble finding a new home, then you might have to apply to your local council and asked to be rehoused as homeless.
Should I pay off the mortgage or port it?
If you are wondering what happens to your mortgage when you sell a home, you have two options: paying it off or porting your mortgage to another property.
Porting your mortgage refers to the process of transferring your existing mortgage deal onto your new property. You can find out all about porting a mortgage, and if this is the best option for you by reading our guide.
Read: Porting your mortgage
It’s completely up to individual circumstances whether or not porting or paying off your mortgage is the best option:
When should I port my mortgage?
- If you’re happy with your existing mortgage deal and don’t want to change it
- If you’re not in your mortgage’s initial deal term as you won’t have to pay early repayment charges
- If your property valuation won’t cover your mortgage debts, but you’re comfortably paying your mortgage payments each month
When should I pay off my mortgage?
- If your property valuation covers your existing mortgage debt, or you can afford to pay off the mortgage debt
- If your current mortgage payments are too expensive and you want to look for a new deal
Pros of selling your house before the mortgage is paid off
- If you have fallen behind on your mortgage payments, you can stop repossession of your house by selling and settling the mortgage debt.
- If a change of circumstance means your mortgage payments are now too expensive and you’re struggling to pay them off, you can get a more affordable mortgage deal on a cheaper property by selling.
- If your property valuation is high enough to cover the costs of your mortgage debt, you will have successfully paid off your mortgage and have no debt to worry about – a huge benefit.
- You may even be left with some spare cash afterwards that you can use towards a new home.
Cons of selling your house before the mortgage is paid off
- If your valuation is low and you won’t have enough to cover your existing mortgage deal, then making the remaining mortgage payments to your lender can be incredibly difficult.
- If you can’t pay your mortgage lender, then you will be in a mortgage shortfall. It can be incredibly costly and stressful to get out of this, and legal action can be taken against you if payments aren’t made.
- You might have to secure a short sale with your bank, which means your house will be sold for less than what you originally paid for it.
- You’re responsible for your mortgage payments until your house is sold, so even if you’ve moved into a new property, you’ll still have to pay off your mortgage on your existing property.
- You may even be temporarily homeless until your home is sold.
Additional costs when selling a house with a mortgage
There are a few additional costs to consider when selling your home before the mortgage has been paid off. The main costs to consider when selling your house are:
- Valuation fee
- Estate agent fees (if using an estate agent to sell)
- Early repayment charges if you’re on your standard variable rate (SVR) and not in fixed term contract
If you’re thinking of selling your house before the mortgage is paid, and want a fast sale, then get in touch with our friendly professionals to receive a cash offer.