Unless you own your home outright, then chances are when you come to sell, you will be selling a house with a mortgage. Since the mortgage is a loan secured on your home, it will normally need to be paid off with the proceeds of the sale. If you are buying a new home, and staying with the same lender, you may be able to move, or ‘port’ your mortgage to the new property.
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Can you sell a house with a mortgage?
The answer is usually yes, however you need to be sure that the proceeds of the sale will cover the remaining balance of the loan, as well as any redemption fees for paying off the loan early. If you cannot clear your outstanding mortgage with the proceeds of the sale, then you may not be in a position to sell.
What happens to your mortgage when you sell your home?
So, how does selling a house with a mortgage work (UK) and is selling a house with a mortgage any different from selling any other home? The answer is that the sales process is exactly the same, but there are a few additional things to consider.
Things to consider before selling a house with a mortgage
Before deciding on selling a house with a mortgage, you need to contact your mortgage lender to find out:
- How much is left on your mortgage – please note that your redemption figure may be different from the remaining balance once fees and interest have been added.
- How much your house is worth – if the current value of your home is less than the mortgage redemption figure, then you are in negative equity and may not be able to sell your home.
- Early redemption fees – if you are still in an introductory offer period, there may well be significant fees when selling a house with a mortgage. These can be as high as 3% to 5% of the outstanding balance.
Remember, if you are selling your house to a cash house buyer, then you will not get the full market value and this needs to be factored into your calculations. To get an idea of how much a cash homebuyer will pay for your home, you can click the cash offer calculator below.
What happens to a mortgage when you sell?
Once you have decided on selling a house with a mortgage, the process from there on in is the same as any other sale:
- You put your house on the market
- You find a buyer and agree a price
- On completion, the buyer pays your solicitor or conveyancer
- Your solicitor or conveyancer pays off your remaining mortgage and any fees
- The solicitor will also take their own fees and usually pay your estate agent
- If there is any money left over, this will be paid out to you
It is worth noting that your solicitor or conveyancer is legally obliged to settle any outstanding mortgage debt from the proceeds of your sale before giving you any money that is left. You cannot sell your home and keep the money while maintaining the mortgage, as it is secured on the property and must be settled.
What happens to a mortgage when you sell and buy at the same time?
Most people will be selling one home and buying another at the same time. If this is the case, then you have two choices:
- Pay off your existing mortgage and take out a new loan for your new home
- Apply to move your mortgage to the new property (known as porting)
You can use any profit from your current home sale as a deposit to reduce the mortgage required on your new home, or you can pay the minimum deposit and keep the difference as cash.
What does porting your mortgage mean?
If you are selling a house with a mortgage and buying another property, most lenders will let you keep the same mortgage, with the same terms and interest rate. This is known as porting. There are many advantages of porting a mortgage including:
- Keeping a lower interest rate that is not available on a new mortgage
- Keeping other favourable terms such as payment holidays
- Less paperwork as your lender already knows you
You will still have to pay an application fee, and your lender will still need to arrange a survey of the new property. However, if your new home loan doesn’t materially change your circumstances, you may not need to go through the same affordability and credit checks.
Porting your mortgage may be worthwhile if rates have gone up and you can keep a lower rate. However, if you have equity in your home, and can get a new mortgage at a lower Loan to Value ratio, you may be able to get a better rate. You should talk to an independent mortgage advisor to see which is the best way to finance your new home.
If you need more to buy your new home than you have left in your current mortgage arrangement and cash deposit, then you will need to take out a second mortgage for the difference. This means you will effectively have two mortgages and two monthly payments to make, often at different interest rates. It may be simpler to pay off your original mortgage and take out a single new loan. Again, your independent mortgage advisor will explain the best value route.
Your lender may refuse to port your mortgage if you no longer satisfy their lending criteria due to a change in employment or an increase in personal debt. They may have tightened up these criteria since your original application. However, the Financial Conduct Authority have said that customers porting mortgages should not have to meet new lending criteria if there is no extra money being raised and the loan term remains the same.
Selling your property with a mortgage to a cash buyer
Cash buyers will deal with any home seller, in any circumstances, including people selling a house with a mortgage. In fact, they specialise in helping people who are struggling with mortgage repayments and want to know how to avoid repossession.
What happens to a mortgage when you sell to a cash buyer is exactly the same as what happens to a mortgage when you sell to any other buyer. Your solicitors or conveyancers will settle any outstanding balance and fees, and pay any balance left over to you as cash.
However, as discussed above, selling a house with a mortgage to a cash buyer can be more difficult as you will get less for it than you would on the open market. A cash buyer will usually pay around 80-85% of the open market value for your home, so you need to consider this when working out can you sell a house with a mortgage.
If you cannot clear the outstanding mortgage balance with 80% of the value of your home, then you will not be able to sell your house to a cash buyer. To find out how much you could get by selling to a cash buyer, click the button below.
What’s the process for selling an inherited property with a mortgage?
People often ask can you sell a house with a mortgage it is an inherited home, and the answer is yes. However, the process needs to be dealt with by the executor(s) of the will in the following way:
Selling a house with a mortgage to a cash buyer is possible as part of an inheritance as long as there is enough equity to clear the loan and that all beneficiaries agree to accept a lower price for the property.
The executor(s) must contact the mortgage company and let them know that the mortgage holder has died. They will need the death certificate for this.
The mortgage company will usually freeze repayments while probate is granted, and the property is sold
If repayments are not frozen, then the executor(s) must keep up these repayments and reclaim the money from the estate once it is settled
Once probate has been granted, the house can be sold and the solicitor will pay off the balance of the mortgage, and any fees, in the usual way
Any money left over goes into the estate of the deceased to be distributed according to their will.
Expert Insight from Kelvin Elliott
“Cash buyers are happy to consider any home in any circumstances, including homes that have a mortgage secured on them. They will advise you about how much you can get for your home, and help you to work out whether this is enough to clear your mortgage and any associated fees.
If the sums work out, a fast cash buyer can assist you in selling a house with a mortgage in as little as 14 days, clearing your outstanding balance and putting any cash left over straight in your bank, so you can make a fresh start without the burden of your monthly mortgage payments.“
Can you sell a house with a mortgage?
Yes, selling a house with a mortgage is no different to selling a house that you own outright
What happens to mortgage when you sell?
If you are selling a house with a mortgage, any outstanding balance will be paid by your solicitor or conveyancer before you receive any remaining proceeds. This is done automatically, and you do not have the option of not paying off any outstanding debt.
How does selling a house with a mortgage work (UK)?
Selling a house with a mortgage works exactly the same as any other house sale. However, there are some things you need to consider before you start to sell, such as whether there is enough value in the property to cover the outstanding mortgage.
Should I pay off my mortgage or port it?
It depends on your circumstances and the mortgage deals available at the time. Your mortgage advisor will help you to decide the best course of action.
Can I sell a house with a mortgage to a cash buyer?
Yes, but remember, you will not get the full market value for your home and this needs to be considered when you are checking you have enough to clear the debt. If 80% of the market value is not enough, then you may have to wait for a full value open market offer to make your sale possible.
Conclusion
Selling a house with a mortgage is a common process and most homes are sold this way. As long as there is enough value in the property to cover the outstanding balance, then selling a house with a mortgage should be simple and straightforward.
Selling a house with a mortgage to a cash buyer can be a little more complicated, as you will get less for your home by selling this way. However, it can still be a quick and easy solution if there is enough equity in the property. The speed of a fast cash sale can also be useful if you are having problems meeting your mortgage repayments and it could help you avoid the costly process of repossession.
To find out what you could get by selling a house with a mortgage to a cash buyer, click the cash offer calculator below. There’s no obligation to take the offer, but it will help you to assess your options.