Selling a House with a Mortgage

If you are planning to sell your mortgaged house, you may be wondering what happens to the mortgage after you complete the sale. It might be easy to assume you simply repay the outstanding mortgage and start over.

This is not always the case, and you may wish to port your mortgage product to a new property or explore a number of options available to you when you sell your mortgaged property. The good news is a reputable mortgage broker will be able to assess your personal circumstances and advise you on the best course of action.

Let’s explore what happens to your mortgage when you sell your property.

What Happens to Your Mortgage when You Sell Your House

There are various scenarios that could be at play when selling a property with a mortgage.

The most common is a simple sale/purchase where you are selling your current property and using the equity to buy an onwards property. In this case you may wish to settle your current mortgage and obtain a new mortgage or port your mortgage from your current property to your intended property.

If you are selling due to financial hardship you may not be looking for an onwards mortgage, in which case you will need to settle your existing mortgage. In the cases of repossession, a lender will auction the property, settling the mortgage themselves and paying you any remaining funds after fees.

for sale sign

How Do You Sell a Mortgaged House

Selling a mortgaged house is done in exactly the same way as if you sell without a mortgage.

There are aspects of the property sale you would need to factor in though compared to if you owned the property outright. First you will need to ensure the listing price is at least the outstanding capital portion of your mortgage.

property listing

You can contact your lender and ask for the amount due if you were to settle your mortgage today. Be aware, lenders often have Early Repayment Charges, and you may need to price this in with your property listing.

In cases where you have negative equity, you will need to either list the property at a higher value to cover the loss or have funds ready to settle the debt yourself. It can be extremely difficult in cases of negative equity to list the property at a higher value, especially if you are selling shortly after purchasing (within 5 years) or you overpaid on the original purchase.

To be on the safe side with negative equity you should have a detailed conversation with a mortgage broker.

In rarer cases, you may need to seek your lenders’ approval when selling a mortgaged property. For example, if you bought a property with land and wish to sell the land or just the property, you will need to split your title deeds. To split deeds on a mortgaged property you must get consent from your lender.

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Do I Need to Get a New Mortgage?

You do not always need to get a new mortgage, even if you are moving to a new property. This is because most lenders allow you to port (move) your existing mortgage from your old property to your new one.

In some cases, porting is not possible, for example, if the amount of debt changes significantly or the new property does not meet your current lenders’ property requirements.

In these circumstances you will need to secure a new mortgage and repay your existing mortgage with the proceeds of your sale.

Can I Transfer My Mortgage to Another Property?

Yes, in some cases porting your mortgage will be possible. This is especially the case if the new property is a similar value, and the property is of usual construction and deemed mortgageable by your lender.

exchanging keys

Porting a mortgage can be advantageous for two reasons. The first is if interest rates are higher compared to your current mortgage and you wish to retain the interest rate you secured initially. The second is you will have no Early Repayment Charge by porting so you could save yourself thousands of pounds.

Porting is not always the best option, even if interest rates have changed or you have Early Repayment Charges. For example, you may find a property of similar value but need to secure additional finance for renovations, which would make your current mortgage product unsuitable.

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Is Porting or Paying Off Your Mortgage Better?

Both porting and paying off your mortgage are good options in different circumstances.
Whether porting or repaying your mortgage is best for you will be entirely dependent on your current situation.

In order to decide which option is best for you, it is best to speak to a mortgage broker and run through your financial situation with them.

They will ask you about your current property and what your goals are with your new property. The broker will then consider your existing mortgage product and compare it to the products available on the market.

Once the comparison is complete, the broker will be able to work out which option is better for you financially. This will include factoring in costs such as Early Repayment Charges and any interest rate changes.

They may for example advise you to repay your current mortgage and pay an Early Repayment Charge because they are able to make you a greater saving by switching you to a lower interest rate.

Remember, depending on the stage you sell your property, you may have built up a large pot of equity which will help secure lower interest rates because your Loan to Value will be favourable.

Speak to a Mortgage Broker

Irrespective of whether you are looking to port or take out a new mortgage, it is invaluable to have independent mortgage advice.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice and can assist you with an onwards mortgage or porting your existing mortgage.

Contact Boon Brokers to find out if porting or a new mortgage is best for you today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.