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How to quickly sell a property with an existing mortgage

by | Feb 18, 2023

Home $ How to sell a house safely and successfully $ How to quickly sell a property with an existing mortgage

Selling your home is in fact possible at any time, provided that you can afford it and the process won’t bankrupt you.

Selling a home may not be financially feasible if you are in negative equity due to there being negative capital appreciation in an area.

This is relatively rare. However, negative equity there is still always a chance that it could happen during recessions or in areas where there is an oversupply of housing like if there was a recent new build development constructed.

Whether you plan to buy another property or not, there may be costs and financial penalties when paying off all or part of your mortgage. This usually comes in the form of early repayment charges.

A seller can work this out by looking at the terms of a mortgage with someone who understands finances very well such as a solicitor who specialises in selling houses.

To obtain the terms and conditions of a mortgage you can request it from the lender you have through their website, email them or call.

Most of the time, a bank or lender will return the information that you require within ten days but it could take a bit longer depending on when you made your request.

Another useful thing you can do is get the advice of estate agents or even accountants who may be able to advise you on the type of tax that you could end up paying.

selling a house with mortgage

What factors should be taken into account before selling a house that has a mortgage?

Before selling a house with an outstanding mortgage, there are several factors that you need to take into consideration. 

First of all, if it is your intention to fully pay off your mortgage and you don’t want to buy another house, the value of the mortgage you have must be less than the sale price of your home.

This is because the money you make from the house will be used to pay off the mortgage and you don’t want to be left with any outstanding balance on your mortgage unless you have the cash to cover this.

The proceeds from the sale of your home will be used to pay off your existing mortgage. If the sale price does not cover the outstanding amount, you will still be responsible for making mortgage payments until the loan is fully repaid.

Until the property is sold, you are responsible for all mortgage payments, insurance, and other household costs.

If you decide to do this, it is vital you consider your income after the sale of your property, especially if you are unemployed and receiving benefits.

Because of this, selling may not be financially viable if you have negative equity, meaning you owe more than the current value of your property, and you may need to explore alternative options.

Advantages and disadvantages of selling a house with a mortgage

Before going ahead with selling a house with a mortgage, you should weigh up the pros and cons of doing so as there are still disadvantages, even if you can afford it.

Benefits of selling a house with a mortgage

  • If the value of your property is high enough to cover your outstanding mortgage debt, selling your property can fully pay off your mortgage and eliminate your debt, which is a significant advantage.
  • In addition, you may even have extra money left over that you can put towards purchasing a new property.
  • If your mortgage payments have become unaffordable due to a change in your circumstances, selling your property and using the proceeds to buy a more affordable property with a cheaper mortgage may be a good option.
  • Selling your house and paying off your mortgage debt can prevent your house from being repossessed if you have fallen behind on payments.

Drawbacks of selling a house with a mortgage

  • If the value of your property is low and insufficient to cover your current mortgage agreement, it can be extremely challenging to make the remaining mortgage payments to your lender. 
  • In such a scenario, you may need to arrange a short sale with your bank, which entails selling your house for less than its original purchase price.
  • 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.
  • It can be incredibly costly and stressful to get out of a mortgage shortfall, and legal action can be taken against you if payments aren’t made.
  • You may also struggle to find somewhere to live while you are selling your house and may find yourself without a personal place of residence.
selling a house with a mortgage papers

What occurs with the mortgage when I sell my house?

The most common scenario that sellers run into is their mortgage is repaid in full from the sale of their property. 

However, there are some other options that could be available like transferring the mortgage, or refinancing it completely. 

Can I transfer my mortgage to another property?

While relocating, it is possible to transfer your mortgage using a procedure known as mortgage porting. 

The previous mortgage agreement, including the interest rate and terms and conditions, can typically be transferred to the new property without changing the mortgage itself. 

Before pursuing this alternative, it’s crucial to understand that not all mortgage products can be migrated, therefore it’s important to review the conditions of your current agreement.

You might need to refinance to a different product if your present mortgage is not transferable. 

Nevertheless, if you’re moving in the middle of a fixed-term agreement, this could result in a large early repayment fee as an additional cost to sell your house.

How is my mortgage paid off when I sell my house?

The mortgage is paid off in a lump sum as long as you don’t have to deal with any fees beforehand, it is quite a straightforward process.

Once the mortgage is paid off you may receive written confirmation from a lender that the house is now one hundred percent owned by you and then you can go ahead with the sale.

When selling, research what not to fix before selling a house.

What is negative equity?

When the value of your home is less than the remaining debt on your mortgage, this is referred to as having negative equity. 

As the sale price is insufficient to pay off the outstanding mortgage obligation, this can present a considerable issue when selling the house.

Negative equity can still happen during periods of economic or political unrest, such as the 2008 financial crisis, even if it has been less common in recent years due to an overall increase in home prices. 

Some homeowners could experience negative equity at times like this.

Comparison of porting and paying off a mortgage

If you want to become debt free, it is recommended to pay off a mortgage. This will allow you to sell your house and move on without any issue.

However, there could be good deals available if you transfer a mortgage over to the new property you have. It could be that the interest rate gets reduced and there are little fees and costs for doing so.

So, consider each case individually and speak to a mortgage advisor who will be able to tell you if what you’re doing makes sense financially.

an estate agent selling a house with a mortgage

What should I do if my mortgage has early repayment penalties?

It is not possible to not pay an early repayment charge and still transfer or pay off a mortgage if there is a fee that needs to be paid.

But most people don’t consider that you could end up saving money on the interest on a deal over time anyway by switching to a cheaper mortgage so the early repayment charge is worth paying.

Does porting my mortgage allow me to bypass the mortgage application process?

Technically this does work but a lender will still need to do the right valuation to ensure they sell your house for more than the value of the mortgage.

Your lender will also assess your borrowing capacity and debt-to-income ratio when you apply for a mortgage transfer because your financial circumstances might have changed when you first obtained your mortgage.

Which is better: porting or paying off my mortgage?

This really depends on your current situation. If your current rate is working in your favour, and is better than others on the market, then port it. 

If paying your mortgage off early would incur penalty charges, porting may also be worthwhile as it will save you money.

At the same time there are other situations like having to sell a house quickly to pay for care which means paying off a mortgage and getting a sale done quickly is the best scenario.

How long do I have to wait to sell after getting a mortgage?

Mortgage lenders frequently follow the “6-month rule,” albeit not all of them do so. It states that before a property can be sold, it must be occupied for at least six months. 

Due to lending restrictions, it is not permitted to make new loans on properties that have been listed with the land registration for less than six months.

In addition to this rule, it’s critical to take your selling motivation into account. There shouldn’t be anything stopping you from selling if your motivations are related to your job, your children, or your health. 

Nevertheless, if all you want is a change of scenery, potential buyers might be put off by the short amount of time it took you to sell a house when they look at how long it takes to sell a house.

How to purchase a new house before selling your current one

It won’t be possible to transfer your current loan or get a new one if you want to buy a new home but need a mortgage but your present home hasn’t sold yet. 

Most homeowners lack the borrowing power necessary to simultaneously handle two mortgages. 

What can you do then, if your house doesn’t sell or the buyer backs out at the last minute, to avoid losing your ideal home?

There are several options for quickly selling your home. Modern auctions, where buyers must exchange and complete the deal within 56 days of the auction, are one increasingly popular choice.

To conclude

Selling a house with a mortgage is an option that is generally only available for those who can afford it. If you can’t afford it then you home will likely be repossessed. 

The rules may also be different if you have a shared ownership property or are making a decision with multiple people like if you shared a house with a spouse or have a civil partnership.

So, consider the rules around the topic carefully and do not hesitate to speak to a mortgage broker if you’re unsure.

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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.


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