Can you sell your property with a mortgage?

If you have a mortgage on your home, you still own it.

This means that you can sell your house at any time – as long as it’s affordable.

We often have clients that are unsure of what will happen to their mortgage when they sell up.

To help, we’ve explained the various options that are available to sellers when selling a home with a mortgage on it, and also some helpful tips!

Selling a house with a mortgage  

 When it comes to selling your home, you typically have two options:

  • Repay your outstanding mortgage debt
  • ‘Port’ your existing mortgage onto your new home

How your mortgage is paid off when you sell

Firstly, it is important to ensure that the price you’re selling your house for covers your outstanding mortgage debt. If it doesn’t, you risk being in ‘negative equity’.

Negative equity means that the property is worth less than the mortgage secured on it, if this is the case, selling may not be the best option financially. If you are unsure of what to do, you can contact an independent mortgage adviser who can advise.

If your property sale is enough to pay off your outstanding mortgage debt, and you are not porting, your solicitor will usually pay off the loan with the funds from your sale.

If there is any money left after paying off all outstanding debts, this can be used as a deposit on a new property if you wish.

Things to consider when paying off your mortgage

Besides ensuring that your sale price is enough to pay off any existing mortgage debts, it may be important to consider any early repayment charges. If you are currently tied into a fixed rate, you may face a charge for repaying your mortgage early.

This cost should be considered when budgeting for your sale.

What is ‘Porting’?

Porting is when you transfer your existing mortgage to a new home. Porting may be an attractive option to you if you have a really good interest rate that may not be available from a different lender – it means you can move home but keep your existing mortgage rate and lender.

However, as you are now borrowing against a different property, your lender will need to value the new property. This usually comes with a charge, as if you were applying for a new mortgage.

Your lender will also need to reassess your affordability on your new property and your current circumstances – sometimes this can mean that porting is no longer an option if your circumstances have changed or if your new property is deemed unaffordable.

If you are borrowing more to fund your new home, there may be your original ported interest rate, and another for the additional amount you have borrowed. This is because although your mortgage is technically transferring to your new property, in reality it is redeemed, and a new loan is issued on the same interest rate and terms.

Things to consider when Porting

Porting is often available on most mortgages; however, it is not always accepted by your lender.

This may be because:

  • You no longer fit their lending criteria due to changes in your circumstances (e.g. change of income, employment status or debt level)
  • You have previously missed payments
  • You are approaching retirement
  • Your new property does not meet lending criteria

Porting can also incur a fee. If you are borrowing the same amount for your new home then the only fee should be the valuation on your new property. However, some lenders do charge an arrangement fee for porting – so it’s best to check this beforehand.

If you are increasing your borrowing, there may be a product fee for the extra amount you are borrowing. Finally, if you are decreasing your borrowing, you may have to pay an early redemption fee on the difference between the two mortgage amounts.

What is the most suitable option for me?

 As always, this depends on your individual circumstances. It’s important to ensure that you compare the costs of repaying your mortgage and applying for a full one.

Some things to look out for are:

  • Potential porting fees
  • Any product or arrangement fees on a new mortgage
  • The cost of valuations on your new property
  • Early repayment charges on your existing mortgage
  • Any exit fees
  • The interest rate on your current mortgage vs. the interest rate on a new one

It may be a good idea to seek some help from an independent mortgage adviser who can help you weigh up the options to decide the most suitable options for you.

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