When you sell your house, what happens to a mortgage depends on:
- What you plan to do next
- The terms of your mortgage deal.
Read on to find out more about selling your house with a mortgage.
Common scenarios for selling your house with a mortgage
1. You’re selling your home but not buying another
If you have a mortgage and are selling up but have yet to buy a new home, there are some essential things to consider.
Will your home’s sale cover the mortgage and associated fees associated?
If a mortgage is more significant than the value of a home, you are in negative equity. This means you need to make up the difference. In this situation, waiting until the market picks up is often better.
Will you be asked to pay an early repayment charge (ERC) before committing to a sale?
Not all mortgages have ERCs, which can be expensive and may put you off selling.
They apply to people who want to leave a mortgage deal while still in its introductory period, which usually includes a discounted interest rate.
Providers include them to protect them from losing out on interest payments.
Charges vary and decrease over the length of a deal. So, in the first year of a mortgage, which you are tied to for five years, the charge may be 5% of the value of the mortgage, decreasing by 1% each year after.
Many lenders allow a certain amount to be overpaid annually without attracting an ERC. Some lenders also charge a mortgage exit fee, usually between £100 and £300 when you leave.
What happens once your sale is complete?
Once a sale has been completed, your mortgage will be redeemed. This means your solicitor or conveyancer will transfer the necessary money from the sale to your provider to pay it off.
They will transfer the remaining amount to you, minus their fees and other costs.
Moving with a mortgage
There are several ways to move home with a mortgage. Many providers allow you to move your mortgage while keeping the same terms as porting.
Porting a mortgage
If you are still tied to the initial deal period of your mortgage, you will not have to pay the early repayment charge (ERC) when you port your mortgage.
However, you will still need to apply to port your mortgage. This will involve your provider going through your incomings and outgoings as they would when you apply for a new mortgage.
If your circumstances have changed or their criteria have become stricter, they may refuse your request.
Often, people porting a mortgage will be trading up and require more borrowing. As above, they will have to demonstrate they can repay it.
Separate loans
Many lenders will not add the extra lending to your current mortgage, preferring to give you a second loan with a higher interest rate. Since you’re tied to that lender, you’ll have little choice but to accept it.
Switching mortgages
If you’re outside your introductory deal, you can search for the mortgage with the best interest rate.
Remember, you must prove you can afford the repayments, which may be more challenging if you are trying to borrow more. Also, factor in any mortgage arrangement fee you may have to pay.
It may be worth switching to a new mortgage even if leaving your old one will prompt an early repayment charge.
You’ll need to work out carefully whether the savings you will make by switching to a mortgage with a better interest rate will be more significant than that charge.
Talking to a mortgage advisor will help you understand the advantages and disadvantages of doing this.
Mortgage criteria changes
Some homeowners are in the unfortunate position of being unable to access cheaper mortgage deals because the criteria for them have tightened since they took out their previous mortgage.
This means they’re stuck with higher rates. Selling your home quickly is one way to relieve the stress of large mortgage repayments.
(There are several ways to achieve a quick house sale, including working with and without an estate agent).
However, always ensure you have somewhere to move to before doing this.
Working with We Buy Any Home
If you want to sell your house quickly, we can buy it in as little as seven days.
We’ll give you a guaranteed completion date so you know when the money will hit your account.
We’ll also let you live there rent-free for a short period after the sale, so you have more time to prepare for your next move.
Even if you have a small early repayment charge due, you might save money with us by:
- Stopping mortgage payments as soon as possible
- Avoiding solicitors’ fees
- Avoiding estate agents’ fees
It’s essential to scrutinize your figures before making a decision. We’re also happy to discuss your situation and whether we’d be a good option.
