Most people take out mortgages when they buy a property. It is not uncommon for a mortgage agreement to last 20 or 25 years, and even longer in many cases. But what happens if you want to sell your property before your mortgage ends?
In this article we will explain everything you need to know about selling a house before your mortgage has been fully paid off.
Can I Sell My House If I Still Have a Mortgage in the UK?
Yes, absolutely. In fact, it would be fair to say that the majority of people sell up and move to a new property before they have paid off their mortgage. A mortgage can be paid off, moved (porting) or remortgaged completely when a property is sold. Most commonly, the seller will repay their mortgage in full from the sale of the property.
As long as you can afford to pay off the outstanding mortgage, you can sell your home at any time. Or alternatively, you may wish to transfer your existing mortgage to a new property.
Ultimately, you can either:
- Sell your property and use the money to pay off your mortgage
- Move the mortgage to another property if you are buying again (porting)
If you do not plan to buy another property immediately, generally the sale price needs to be higher than the outstanding mortgage balance.
What Happens to My Mortgage When I Sell My House?
When you sell your house, usually the mortgage on your existing property will be paid off from the sale of the property (if you are not porting your mortgage). In order to do this, the sale price must cover the amount which is remaining on your mortgage. Typically, the solicitor or licenced conveyancer who handled the paperwork during the sale of the property will take care of this process.
Will I Need to Tell My Mortgage Company That I am Selling My House?
Yes, you will need to let your mortgage lender know if you are intending to sell your house.
Getting in contact with your seller is a good idea beyond simply letting them know that you want to sell your house. You can discuss a number of issues around your mortgage and finances with your mortgage lender, including:
- Your existing mortgage
- Your finances and budget for your next move
- The value of your current home
- Your borrowing potential
- Early repayment fees on the mortgage
- The possibility of remortgaging or porting
Is It Possible to Sell a House Before the Mortgage Ends With Negative Equity?
If a valuation is carried out on your property and the value is deemed to be less than the outstanding balance on the mortgage, you are in negative equity.
If you find yourself in this situation, it is worth talking to your mortgage lender to ascertain whether it really is the best time to sell. Whilst it is uncommon for a property to have devalued in price, it is important to seriously reconsider selling your property as it will not be the best option financially.
Do I Need to Pay Early Repayment Charges?
Mortgages usually have a stipulation around early repayment charges. Typically, most people have a fixed term of around three to five years on their mortgage agreement, after which early repayment charges do not apply. Contact your mortgage lender to confirm whether or not you will need to pay early repayment charges.
Keep in mind that you could offset the costs of paying early repayment charges by shopping around and finding a new mortgage provider which offers a better deal.
What is Porting a Mortgage?
Porting a mortgage loan is the process of transferring an existing mortgage deal to a different property. Porting is popular with homeowners on attractive interest rates, as a new mortgage could bring a higher interest rate due to higher rates.
If you have a good fixed-rate or you are still within the early repayment fee period, porting your mortgage could be a great option. Porting your mortgage can save you a lot of money, not to mention saving you the hassle of starting a completely new mortgage application.
Mortgage porting is an option for most (but not all) mortgages. Your age, income and employment status, as well as the type of property will all have a bearing on your eligibility.
The process of porting a mortgage is generally relatively straightforward and usually involves completing a short application. Typically, there is no fee for porting a mortgage if the loan amount will not be increasing or decreasing. The mortgage lender will still need to value the new property though to ensure that it is worth more than they will be lending.
When you port, you are effectively still redeeming your existing mortgage whilst still taking out a new one. The new mortgage still remains on the same terms and interest rate as the ported mortgage.
If you are porting and you are selling your property to buy a more expensive one, you may need to get two mortgages. One would be the existing mortgage, and a second mortgage would be to cover the difference in price between the two properties.
What to Consider Before Selling a House With a Mortgage
There are a few important points to keep in mind before deciding to go ahead with selling a house with a mortgage:
- You will still be responsible for mortgage repayments, insurance and any other household costs until the property is sold
- When you sell your home, proceeds from the sale of the property are used to pay off the existing mortgage balance
- You will need to continue to make mortgage repayments if you do not make enough money from the sale to pay off the outstanding mortgage balance. This needs to be done until the loan is paid in full
How Does Selling a House With a Mortgage Work?
At its most basic level, selling a house before your mortgage has been paid follows a process similar to the one outlined below:
- Firstly, work out how much you still have left to pay on your mortgage
- Arrange a valuation of your property
- Determine the repayment method of the mortgage
- Sell your house (assuming that the valuation determined the amount your property can sell for is enough to cover outstanding mortgage repayments)
- Buy a new house
Now let’s go into a bit more detail around the process.
Work Out How Much of Your Mortgage You Need to Repay
Firstly, you need to work out how much you have left to pay on your mortgage. Your mortgage lender will want to understand how and when the outstanding mortgage balance will be paid.
Arrange a Valuation
You will need to arrange a valuation of your property to establish how much it is likely to sell for. This information will allow you to determine whether the amount your property sells for will be enough to cover the full mortgage repayment.
If the property doesn’t, you will need to ask your mortgage lender whether it is possible to sell the property.
Here at Chancellors, our expert valuation team offer market appraisals for accurate valuations on properties. Book your valuation with one of our team today.
Selling Your Home
The next step in the process is to sell your home, assuming that the valuation determined the amount your property can sell for is enough to cover the outstanding mortgage balance. Remember that you will need to have access to certain certificates when selling a house, and will also need to legally disclose some information.
If the amount the home is sold for is not enough to cover the outstanding mortgage balance, the debts will need to be repaid by the sellers. This is known as a mortgage shortfall. In this situation, you might consider a short sale, which is when the mortgage lender accepts a reduced debt repayment to complete the sale of your property.
It is important to note that if you buy another property before paying off the mortgage shortfall, your mortgage lender may decide to take legal action against you.
Once your property has been sold, the natural next step is to find a new place to call home.
Should I Pay Off My Mortgage or Port?
This is entirely dependent on your circ*mstances.
Paying off a mortgage is the better option if the property valuation covers the existing mortgage debt, or if you can afford to pay off the mortgage debt. It is also more beneficial if you want to look for a new mortgage deal.
Porting on the other hand is a good option if you are happy with an existing mortgage deal. Also, you will not need to pay early mortgage repayment charges if you are still within the early repayment period of your mortgage.
It is also a good idea to port your mortgage if the valuation of your property doesn’t cover your mortgage debts, but you are in a position where you can comfortably pay the mortgage payments every month.
Are You Thinking About Selling Your Property Before Your Mortgage Ends?
If you are thinking about selling your property before your mortgage ends, Chancellors can help you every step of the way. Our friendly estate agents have a wealth of knowledge and experience with selling property. We will work with you tirelessly to help you complete the sale of your property.
To find out more about all our selling services, please contact us today.
