Selling a house with a mortgage
How do you sell a house while still paying a mortgage?
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Can you sell your property while still in mortgage?
Find out what do you need to consider before selling a house with a mortgage?
Looking at the process of selling a house with a mortgage, the pros and cons, and the different ways that you can go about selling a mortgaged property.
A mortgage is a type of loan that millions of homeowners across the UK have that allows them to own their own homes. It often takes many years to repay and means that more often than not when people wish to move houses their mortgages are still not fully repaid.
But when the time comes to sell your property, how exactly does a mortgage affect the selling process?
In this blog post, we will be looking at the process of selling a house with a mortgage, the pros and cons of selling a mortgaged property, and the different ways that you can go about selling a mortgaged property.
Can you sell a mortgaged property?
As a homeowner, you can sell your property at any time, even if you have not repaid the mortgage.
By selling a house with a mortgage you will receive a lump sum of cash which you can then use to repay your mortgage and if there is any leftover you can put it towards your next property.
However, if you do choose to sell your property before you have repaid the mortgage in full, then it is crucial that you pay the remainder of the loan before you attempt to purchase another property.
What should you know before selling a mortgaged property?
Before you decide to put your property onto the market, it is important that you first take into consideration the following factors:
If you plan to repay your mortgage in full but not purchase another property afterward, then you will want to price your home higher than the amount remaining on your mortgage.
When you sell your property, 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, then you will still need to make mortgage payments to the bank until you have paid the mortgage back in full.
When it comes to selling a house with a mortgage, you are responsible for all of the mortgage payments, insurance, and other household costs until the property has been sold.
Once you have sold your property, the existing mortgage loan will be repaid by your solicitor or conveyancer.
It is also important to consider your financial situation. If you are currently unemployed and receive the cash lump sum from the sale of your property it may have an effect on whether or not you will be able to receive benefits.
It is also worth bearing in mind that if you have negative equity (you owe more than the property is worth), selling will not be the best option for you.
What happens if a property devalues?
An issue that can crop up when you are selling a mortgaged property is that the property has devalued.
This means that it is not worth as much as it was when you originally bought it. If your property has decreased in value, it means you could end up with what is called ‘negative equity’.
Negative equity is where you owe more to your lender than your property is worth.
For example, if you bought a home for £200,000 and took out a mortgage of £180,000 but now the property is only worth £150,000, you will be in negative equity.
If this is the case it is always worth talking to your lender and estate agent to see if it the right time for you to sell your house.
How Much Equity Is In My Home?
Equity is your property’s market value minus the total amount you still owe. When you put a deposit down on your home and start paying your mortgage, you have equity. Equity will rise as you pay off your mortgage and your home’s value rises.
Having equity is a huge advantage as it will mean that you will have cash left over after you sell your property to use as a down payment on your next property.
What is the process of selling a house with a mortgage?
If you decide that you wish to sell your mortgage property then below is the process of doing so:
1. How Much Do You Have Left to Pay?
One of the first things you will need to take into consideration when it comes to selling a mortgaged property is exactly how much of your mortgage you have left to pay off.
Before someone else can move into your property, a mortgage lender will want to be sure that your loan is paid back in full.
To do this you will first need to organise a valuation of your property.
In order to decide if the sale of your property will be enough to cover your mortgage repayment, you will need to organise a valuation of your property.
If the valuation reveals that your property sale will not cover repayment, then you will need to contact your lender for permission to sell the property.
2. Debt Repayment
After you have received your valuation, you need to start looking at repaying your debt. If your valuation has been approved a sale will be enough to repay your mortgage then the next step is to sell your home.
If you are lucky there may even be cash left over that you can put towards your new home.
If you have found that selling your home will not be enough to cover your mortgage payments, you will have to repay the debts yourself.
This is referred to as a mortgage shortfall and should you decide to not pay it off and purchase another property, then the lender of the original property has the right to take legal action against you and you can get into a lot of financial and legal trouble.
If you find yourself in a mortgage shortfall, one option is to consider a short sale.
This means that the lender of your mortgage agrees to accept a reduced payoff amount to complete the sale of your property.
3. Finding A New Place To Live
If you decide to sell your home then you next need to start looking for somewhere else to live.
If you do find yourself having trouble finding a new home, then you might have to apply to your local council and ask to be rehoused as homeless.
What should I do with my mortgage?
When it comes to selling a house with a mortgage, you have two options. You can repay your mortgage, or you can port it.
When you port a mortgage, it means that you transfer your existing mortgage deal onto a new property.
Whether or not this is the best option is completely down to personal circumstances.
How do I know if porting my mortgage is right for me?
If you are content with your current mortgage deal, then you may be better off porting your mortgage if your lender allows it.
Another plus to doing this if you are not in your mortgage’s initial deal term then you won’t have to pay early repayment charges.
If your property valuation won’t cover your mortgage debts and will leave you in a mortgage shortfall, then porting may be the way forward.
However, not every lender will allow you to port your mortgage so it is always worth letting your mortgage lender know of your plans so you can discuss your options, or go through an independent mortgage broker.
How do I know if I should pay off my mortgage?
If your property valuation covers your current mortgage debt or you can afford to pay off the mortgage debt, then you will most likely be better off paying off your mortgage.
Alternatively, if your current mortgage deal is too expensive and you want to look for a new deal then paying off your mortgage will be the way forward
What is an early repayment charge?
An early repayment charge (ERC) occurs if you overpay on your mortgage by more than they allow or if you pay the whole loan off too early.
This penalty is charged as most deals have a tie-in period which is often longer than the deal period itself.
This means that if you have a two-year fixed rate mortgage you might get charged an ERC if you try and remortgage within three years.
This might mean that you will have to spend at least a year on the lender’s standard variable rate unless you pay the charge.
Pros and cons of selling a house with a mortgage
As with any property selling decision, there are pros and cons.
Below are some of the pros and cons to selling a house with a mortgage before the mortgage is paid off:
| Pros | Cons |
|---|---|
| Selling a property before the mortgage has been paid off is a good way to avoid repossession as you will be able to use the proceeds to settle the mortgage debt | If your valuation is low and you will not have enough from the sale to cover your mortgage debts then making the remaining payments to your lender can be extremely difficult. |
| If you have had a change of personal circumstance and your mortgage payments are now too expensive, by selling your property you will be able to settle the mortgage debt and get a more affordable deal with a different lender. | If you do not have the resources to pay the remaining debt you will be in a mortgage shortfall. It can be a costly and stressful experience and it can even result in legal action being taken against you by your lender if you do not make the payments. |
| If your mortgage valuation comes back and it is high enough to cover the cost of your mortgage debt you will have no more mortgage debt to worry about. | You may even have to seek out a short sale in order to make payments. A short sale is when your house will be sold for less than you bought it for. |
| If your valuation is high enough to cover the cost of your mortgage debt with enough left over, you will be able to put this extra cash towards your next property. | You are responsible for making mortgage payments until the house is sold, so even if you move into a new property, you would still have to pay off the mortgage on the previous property. |
| You may even end up being homeless temporarily until your property is sold. |
Ways of selling a house with a mortgage
When it comes to selling a mortgaged property there are a few routes that you can take.
The most common ways that people sell a mortgaged property are through an estate agent, a property auction, or a cash buyer.
Each of these methods have their own pros and cons.
Estate agents
The most common way that people sell their mortgaged properties is through an estate agent. An estate agent will undertake all of the hard work involved with selling a property in exchange for a share of the final profit.
One of the biggest advantages to selling through an estate agent is that they will oversee all of the aspects of the sale, including creating a listing for your property and advertising it for you.
However, the downside is that finding a buyer on the open market can be difficult and time-consuming, sometimes taking months at a time before a potential buyer even wants a viewing. If you are looking to repay your mortgage quickly, waiting for a seller on the open market is not always the best option to go for.
It also means that after you have paid the estate agency fees and taken time off work for viewings, you will still have other fees to pay such as legal fees and removal costs. These extra costs add up and can eat away at the final profit considerably.
Auction
Another way that people can sell their mortgaged properties is through a property auction. Although it is traditionally an often-overlooked method of selling, it is one that in recent years has become increasingly popular.
The way a property auction works is that you put it up for sale at a housing auction, agree on a minimum reserve price and if that price reserve is met then the property is sold to the bidder.
A positive to selling through this way is that buyers are often very serious about purchasing as they will lose their deposit and incur fees if they back out of the sale.
This means that the chance of your sale falling through is much lower than if you were to sell through an estate agent.
However, the biggest downside to selling through an auction is that it is not a quick process, which if you are in urgent need to sell is not ideal.
Once you have listed your property for sale, you will have to wait for the next auction which could be weeks or months away.
Even after the auction is complete, you will still need to wait for the paperwork to go through which can add an additional month or more to the process.
Furthermore, selling at an auction is not without cost. Auctioneers, like estate agents, charge a commission to cover the costs of marketing and selling your home.
Cash Buyer
The best way that you can sell your mortgaged property is through a genuine cash buyer. A cash buyer is the most effective way to guarantee a sale on your property in a time scale that suits you.
A huge bonus to selling to a genuine cash buyer is that as they are not in the property chain and reliant on another sale going through, they have the funds to buy your house as soon as you are ready to sell.
They can also complete the sale as quickly as you want, with many being able to complete a sale within two weeks.
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