If you want to start selling your house right away but still owe money on the mortgage, is it possible? Does the amount of equity you have in your property matter? What if you’re in negative equity?
These questions can seem complicated and overwhelming, but the answers are often quite straightforward. Read on to learn more.
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Owing Money After You’ve Sold Your House
When it comes to debt, there are two types to be aware of: secured and unsecured. Secured loans are usually mortgages, held against the value of a property
- If you have enough equity, credit card and loan companies may convert the debt into a secured loan.
- Unsecured loans, on the other hand, are not secured against the value of the property. These can include personal, private, car, student, payday loans, credit cards, and overdrafts.
To sell your house, you will need to pay off the secured loan. For unsecured loans, you are not required to pay back the full debt if you are keeping up with repayment obligations.
Many people opt to pay off their unsecured loans using the proceeds from their house sale, as the high-interest rates these lenders charge can be hard to manage.
Can You Sell Your House for Less Than You Owe?
If you owe more on your secured debt than your property is worth, what happens if you sell your house for less than what you owe? It is possible to do this, but you must get permission from your lender first.
You’ll need to pay the difference between the amount your house was sold for and the amount you still owe on the mortgage.
You could use any savings you have to cover the shortfall, or you could get a temporary bridging loan. In certain cases, the amount of negative equity can be secured against a new property purchase.
Do you have to pay off your mortgage when you sell your home?
Yes, if you’re selling a property, you’ll need to pay off any outstanding amount on your mortgage, plus any associated penalty charges, such as a mortgage exit fee or an early repayment charge.
However, if you’re also buying a house at the same time, you may be able to ‘port’ your mortgage to the new home.
‘Porting’ a mortgage means taking the rates and terms of your loan with you when you move house. It doesn’t mean transferring the loan from one property to another.
You’ll still need to pay off anything that’s left on your old mortgage, and then take out a new one secured against your new home. However, the terms of the new loan will be identical to the terms of your old mortgage, and you won’t have to pay any early repayment charges or exit fees.
In effect, it will feel like you’re just taking the loan with you.
“Porting” a Mortgage (for a House in Negative Equity)
Porting is when you transfer the debt that you owe from one place to another. If you owe more than the value of your current property, the lender may require you to pay off the original debt before they agree to port the mortgage.
To cover the difference, you will need to find the money. In most cases, the lender will agree to port the mortgage if you are buying a smaller property. You won’t have to pay anything for an early exit or repayment.
However, you will have to go through the same credit checks and processes as when you first took out the mortgage.
Can I Sell my House if I Have an Interest-Only Mortgage?
You can sell your home at any time and use the money, provided you are not in negative equity, to pay off your mortgage.
Can I Sell My House with Mortgage Arrears?
It is entirely possible to sell a property even if you are behind on your mortgage payments.
However, it is not advisable to do so if you are declaring bankruptcy, if you have negative equity, or if your accommodation requires more expensive monthly payments than your previous mortgage.
If I Sell My House for More Than I Owe, Can I Keep the Profit?
The answer is yes! If you get an offer that is higher than your mortgage, you can take it. This means you’ll have a good amount of home equity, which you can pocket as your profit.
Selling a property is a great way to pay off mortgage debt. It’s especially helpful if you’ve built up a lot of equity over the years.
Just keep in mind that if you’re selling before the mortgage term ends, you’ll have to pay Early Redemption Charges (ERCs). Plus, of course, you’ll have to cover the costs of selling the property (estate agent fees, solicitor fees, etc.).
However, if your property has been your primary residence, you won’t have to pay any taxes when you sell.
Is it better to pay off my mortgage before selling my house?
There’s no definitive answer to whether it’s better to pay off your mortgage before selling your house. It comes with its pros and cons.
On the one hand, selling a property with a mortgage can be expensive. You’ll need to factor in things like early repayment charges, exit fees and the possibility of being in negative equity in addition to the normal costs of selling.
On the other hand, living in a house that doesn’t suit your current circumstances comes with its own financial and emotional costs.
It’s important to consider the advantages and disadvantages before making your decision. For instance, you may want to think about how long you’ve lived in the property and the type of loan you have.
These two elements can heavily influence how much it will cost to sell your home before you’ve paid off your mortgage.
As a general rule, the longer you’ve owned the property, the cheaper it is to exit your loan.
- If your mortgage is a fixed interest rate, you’ll probably be charged an early repayment fee, which can be up to 5% of the value of your loan. The percentage may decrease the longer you’ve had the deal, so check your loan terms with your provider.
- Standard variable rate mortgages usually don’t require an early repayment charge. However, you may still have to pay an exit fee. On the other hand, an interest-only mortgage can be one of the most expensive to exit from early. You’ll have to pay the full amount of your mortgage, and the early repayment charge – which is usually a percentage of your remaining mortgage – can add an extra cost.
However, sometimes the most financially responsible option isn’t always the best choice. It’s also important to take your circumstances into account.
Think about why you need to move house, and the value of your new property to your life. Weigh up the costs associated with selling with a mortgage against the potential benefits of your new home.
Negative equity
Being in ‘negative equity’ means that the sale price of your home is not enough to cover the amount of your mortgage still owing. This isn’t very common in the UK, but it can happen if you are selling a new build, a dilapidated home, or during a downturn.
If the sale proceeds are less than the amount still owed on the loan, you must pay the difference out of your savings. If you cannot do this, your lender may take you to court and demand payment. In some cases, they might even have rights over any new property you buy.
If you can’t pay off your mortgage with the money from the sale, there are a few solutions:
- A Short Order: If the valuation of your home suggests it will sell for much less than the remaining mortgage, you should discuss this with your lender. They might be able to provide a ‘short order’, which lets you pay less than the full amount. They might also offer a payment plan, so you don’t have to pay the difference in one go.
- Bankruptcy: If your mortgage is not your only debt and you can’t make payments, declaring bankruptcy may be the best option. However, this should only be considered as a last resort.
Many homeowners turn to estate agents when selling their property, but a rising number of people are choosing to bypass the hassle of a traditional open market sale.
sell to us!
Property Saviour offers decades of experience in the fast house sale market.
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Property Saviour Price Promise
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- These valuations or surveys result in delays and price reductions later on.
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