what happens to your mortgage when you sell your house?

February 8, 2024

258
When you sell your house, the process of dealing with your mortgage is straightforward, but it’s important to understand the steps involved and any potential implications. Here’s what happens:

Mortgage Repayment

Paying off the Mortgage:

The proceeds from the sale of your house will first be used to pay off the remaining mortgage balance to your lender. This repayment is typically handled by your solicitor or conveyancer as part of the property sale process.

Early Repayment Charges:

If you’re still within a fixed-rate, tracker, or discount mortgage deal period, you may be subject to early repayment charges (ERCs). It’s crucial to check your mortgage terms or consult with your lender to understand any fees that might apply if you repay your mortgage early due to selling your house.

Any Remaining Funds

After Mortgage Settlement:

Any money left after paying off the mortgage and associated selling costs (such as estate agent fees, solicitor fees, and possibly early repayment charges) will be yours.

Equity:

The remaining funds represent the equity you had in the property. Equity is the difference between the sale price of your home and the remaining mortgage balance (and any other secured debts on the property).

If You’re Buying Another Property

Porting Your Mortgage:

If you’re planning to buy another property, you may have the option to “port” your current mortgage to the new property, subject to your lender’s approval and the new property meeting the lender’s criteria. Porting can help you avoid early repayment charges and keep a mortgage deal you’re happy with.

New Mortgage Application:

If you’re not porting, or you need additional borrowing for the new property, you’ll need to apply for a new mortgage. This could be with your existing lender or a different one, depending on who offers the best deal for your circumstances.

If You’re Not Buying Another Property

Proceeds After Sale:

If you’re not purchasing another property immediately, the proceeds from the sale, after paying off the mortgage and any associated costs, will be transferred to you. You can then decide how to use or invest these funds.

Additional Considerations

Informing Your Lender:

It’s important to inform your lender of your intention to sell the property. They can provide you with the exact redemption figure (the amount needed to fully repay the mortgage) and detail any applicable fees or charges.

Legal and Financial Advice:

Considering the potential complexities and financial implications, getting legal and financial advice is wise, especially to navigate any penalties, tax implications (like capital gains tax if the property isn’t your primary residence), and to make informed decisions about your next steps. Selling your house and dealing with your mortgage requires careful planning and consideration, especially to understand the financial implications and to make the transition as smooth as possible, whether you’re moving to another property or adjusting your investment strategy.

Answered by:

Phil Greenwood

Mortgage and Protection Adviser

Last Updated:

18.06.2024

Answered by:

Phil Greenwood

Mortgage and Protection Adviser

Last Updated:

18.06.2024

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