Selling a House Before the Mortgage is Paid

You can sell your house at any time, even before your mortgage has been fully paid. By selling your house, you receive a lump sum of cash that you can use to pay off your mortgage and if there is any remaining cash, you could put that towards a new home. If you do choose to sell your home before your mortgage has been paid in full, you must pay the remaining balance of your loan first.

This guide will run you through all you need to know before deciding to sell a home that still has a mortgage.

In this article

What do you need to consider before selling a house with a mortgage?

There are several considerations you should take into account when selling a house before the mortgage is paid. These include:

• If you’re repaying your mortgage in full and not buying another property, the sale price of your property must be higher than the amount remaining on your mortgage loan.
• When you sell your home, the proceeds from the sale are used to pay off your existing mortgage loan. If you don’t make enough from the sale of your home to pay off your mortgage, you will have to continue making mortgage payments to your lender until it is paid in full.
• You are responsible for all mortgage payments, insurance and other household costs (bills) until the property has sold.
• When the property is sold, your existing mortgage loan will be repaid by your solicitor or conveyancer.
• Think about your income, especially after the sale of your property. If you’re out of employment and you receive a lump sum from the sale of the property, this might affect whether or not you can get benefits.
• If you have negative equity (you owe more than what your property is worth), selling won’t be the best option for you financially, and you should explore other options.

What is the process?

1. Consider how much you still need to repay

The first step in selling a house before the mortgage is paid, is to work out how much you have left to pay. Your mortgage lender will want to make sure that your loan is paid in full before someone else moves into the property, and this will be their main priority.

You will need to organise a valuation of your property, as this will determine whether or not the sale of your property will cover your mortgage repayment. If it doesn’t, then you will need to ask your lender for permission to sell the property.

2. Repay your debt

After your valuation, if the amount your home is sold for is enough to cover the outstanding mortgage payments, then the next step is to sell your home. The fastest and easiest way to do this is through a quick house buyer, like Good Move. We can sell buy and sell your home for cash, in as little as seven days. or advise you on other options to help you sell your home fast.

If the amount your home is sold for is not enough to cover the outstanding mortgage payments, you will have to repay the debts yourself. This is called a mortgage shortfall. If you don’t pay off the mortgage shortfall and buy another property, then the lender of the property has the right to take legal action against. If you are in a mortgage shortfall, you can consider a short sale. This is when the lender of your mortgage agrees to accept a reduced payoff amount to complete a sale of your property.

Should I pay off the mortgage or port it?

When it comes to selling your home, you have two options: paying off the mortgage after selling the house or porting it to another property. Porting your mortgage refers to the process of transferring your existing mortgage deal onto your new property. You can find out all about porting a mortgage, and if this is the best option for you by reading our detail mortgage porting guide.

It’s completely up to individual circumstances whether porting or paying off your mortgage is the best option and here are some key reasons for each:

When should I port my mortgage?

• If you’re happy with your existing mortgage deal and don’t want to change it
• If you’re not in your mortgage’s initial deal term as you won’t have to pay early repayment charges
• If your property valuation won’t cover your mortgage debts, but you’re comfortably paying your mortgage payments each month

When should I pay off my mortgage?

• If your property valuation covers your existing mortgage debt, or you can afford to pay off the mortgage debt via other means
• If your current mortgage payments are too expensive and you want to take this opportunity to look for a new mortgage deal

Advantages and disadvantages of selling your house before the mortgage is paid off

It can be difficult to weigh up both sides of the argument when it comes to selling your home, especially when you haven’t been presented with both sides of the argument. Depending on your situation, the best outcome will differ.

The advantages include:

• If you have fallen behind on your mortgage payments, you can stop repossession of your house by selling and settling the mortgage debt.
• A change of circumstance could mean that your mortgage payments are now too expensive, so if you find yourself struggling to pay them off, you can get a more affordable mortgage deal by selling and buying a cheaper property.
• If your property valuation is high enough to cover the costs of your mortgage debt, you will have successfully paid off your mortgage and have no debt to worry about moving forwards.
• You may even be left with some spare cash afterwards that you can use towards a new home.

There are some disadvantages though, and some reasons may resonate with you and your situation:

• If your house is valued at a low price and you won’t have enough to cover your existing mortgage deal, then making the remaining mortgage payments to your lender can be incredibly difficult.
• If you can’t pay your mortgage lender, then you will be in a mortgage shortfall. It can be incredibly costly and stressful to get out of.
• You might have to secure a short sale with your bank, which means your house will be sold for less than what you originally paid for it.
• You are responsible for your mortgage payments until your house is sold, so even if you’ve moved into a new property, you will still have to pay the mortgage at your existing property.
• There is a chance you could even be temporarily homeless until your home is sold.
• There are additional costs to consider, as outlined below.

Additional costs when selling a house with an unpaid mortgage

When you decide to sell your home, you must always incorporate the different costs into your budget to ensure you don’t end up overspending and putting yourself out of pocket. In terms of selling a home before your mortgage is paid, the main things to consider are:

• A valuation fee (sometimes free with companies such as us)
• Estate agent fees (if you choose to sell traditionally with a high street estate agent)
• Early repayment charges if you’re on your standard variable rate (SVR) and not in fixed term contract

If you’re thinking of selling your house before the mortgage is paid, and want a fast sale, then don’t hesitate to get in touch with our friendly team to receive a FREE cash offer..

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