Taking out a mortgage is a major financial responsibility.
It’s necessary for most people to buy a house.
However, many mortgage borrowers don’t live in a house until the end of the mortgage term.
So, what happens if you are selling a house before the mortgage term is up?
Read on to find out.
What is a mortgage term?
A mortgage term is the length of time you will be repaying your mortgage. It is often at least 15 years and can go up to 40 years.
If you reach the end of your mortgage term without paying it off, anything left is due immediately.
Some mortgages allow for extra payments. This will enable you to reduce the interest and length of the loan.
Fixed rate vs. variable rate
You will agree on a fixed rate or variable rate deal with your lender in intervals throughout your mortgage term.
This sets the interest rate you’ll pay on the loan based on economic conditions. It usually lasts for 2 or 5 years.
The interest rate on your mortgage term depends on economic factors and the bank you’re dealing with.
Mortgage advisers can guide you on how these figures vary across the industry.
Can I sell my house before my mortgage term is up?
Yes, you can sell your house before your mortgage term is up. Thousands of people across the country do this every month.
You might face extra costs if you sell before your mortgage term is up.
This is known as an early repayment charge. Your bank will determine how much this is. You usually agree to this rate when you first sign onto your mortgage.
Porting your mortgage
One alternative to selling before your mortgage ends is porting your mortgage.
This means you transfer your previous mortgage to a new house.
Examples of when you might do this include when there are:
- A change in your income
- A change in the loan-to-value ratio of your new house.
Either of these scenarios can leave you in negative equity.
Conditions around porting a mortgage
An early repayment charge might still be involved in this situation (it depends on the terms of your bank).
And you will often need to borrow more money or reduce your mortgage amount. After all, your new property will not always have the same value.
Contact your lender directly if you need clarification on these terms. A legal expert can also provide guidance.
Can I use the same bank for my new mortgage?
Yes, you can port your mortgage with the same bank. You can also port your mortgage with a different bank.
That same lender will also let you take out an entirely new mortgage in most cases. Speak to them directly to confirm that this is permissible.
Early repayment charge for selling before mortgage ends
In most cases, homeowners will have to pay an early repayment charge for selling before a mortgage ends.
It depends on the terms and conditions of your mortgage agreement.
Once you sign it, you agree to the terms. However, there are some scenarios where you can avoid early repayment charges.
A lawyer can guide you on this further if needed.
What happens if my house has decreased in value?
If the sale of your house doesn’t cover the mortgage and early repayment charge, then you need to pay the difference. This is known as a mortgage shortfall.
This might involve using your savings or taking out a separate loan. You could also agree on a payment plan with your lender.
What happens if I don’t need a mortgage on my new house?
This is fairly straightforward and doesn’t change the circumstances around selling your house before the mortgage term is up.
You’ll still need to pay an early repayment charge. And the amount left on the loan will be covered by the house sale.
What you do from there onwards is entirely up to you.
Should I wait until my mortgage term ends before I sell my house?
To decide whether it’s worth waiting until your mortgage term ends before selling, you should take the following steps:
- Calculate how much of your mortgage has been paid off. (Your bank should provide guidance on this)
- Add any early repayment charges you’ll have to pay to sell your house early (including legal fees).
- Once you take this figure away from your expected selling price, you can determine how much profit you will make. If the early repayment charge means you’ll make a loss, it might be better to wait.
A mortgage adviser or financial adviser can give guidance tailored to your situation.
