How Does A Mortgage Work When Selling
When you sell your house, what happens to a mortgage depends on what you plan to do next and the terms of your deal. Here we take a look at some common scenarios. In each case the first step is to talk through your plans with your lender to find out where you stand.
Your conveyancer will deal with the legal side of your mortgage, including transferring money to you and your provider where necessary. If we buy your home we’ll arrange conveyancing and cover its costs.
Selling but not buying
There are some important things to consider if you have a mortgage and are selling up but not buying somewhere new.
Firstly, will the amount you can sell your home for cover the mortgage and fees associated with selling it? If a mortgage is bigger than the value of a home you are in negative equity, which means you would need to make up the difference. In this situation it’s often better to wait until the market picks up if you can.
Secondly, check whether you’ll be asked to pay an early repayment charge (ERC), before committing to a sale. Not all mortgages have them, but they can be very expensive and may put you off selling. They apply to people who want to leave a mortgage deal while they are still in its introductory period, which usually includes a discounted interest rate.
They are included by providers 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.
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, minus their fees and any other costs, to you.
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, which is known as porting. If you are still tied into the initial deal period of your mortgage you will not have to pay the ERC when you port.
However, you will 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. 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.
If you’re outside your introductory deal, you’re free to search for the mortgage with the best interest rate. Remember, you will have to prove you can afford the repayments which may be harder 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 greater than that charge. Talking to a mortgage advisor will help you get to grips with the advantages and disadvantages of doing this.
Some homeowners are in the unfortunate position of being unable to access cheaper mortgage deals because the criteria for them has tightened since they took out their previous mortgage. This means they’re stuck on higher rates. In this situation selling your home quickly is one way of lifting the stress of large mortgage repayments and giving you some financial breathing space. Although always make sure you have somewhere to move to before doing this.
Working with us
If you want to sell your house quickly, we can buy it in just 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 their rent free for a short period after the sale, so you have more time to prepare your next move.
Even if you have a small early repayment charge due, the money you save working with us by stopping mortgage payments as soon as possible, avoiding solicitor’s fees and not using estate agents, may make it worthwhile.
It’s important to look through your figures carefully before making a decision. We’re also happy to chat with you about your situation and whether we’d be a good option. So please get in touch.