Selling a house with a mortgage: Your questions answered

Selling a house with a mortgage: Your questions answered
It's fair to say the majority of homeowners have a mortgage.

Indeed, at last count, there were 10.94 million mortgages in the UK.

But many, when they come to sell their home, are unsure what happens to their mortgage - or even if they can sell at all.

While having a mortgage still means you own your property, what happens to the mortgage and how easily you can sell depends on several factors.

Here, we'll answer some common questions about selling a house with a mortgage...

Can you sell your property while still in mortgage?

In short, 'yes'.

But it's not always as simple as that.

Firstly, let's take a look at the two options you do have when selling your property with a mortgage.

You can:

  *  Sell your property and use the sale proceeds to pay off your mortgage
  *  'Port' your mortgage to another property if you are buying again

When I sell my house, what happens to the mortgage?

The most common scenario with sellers is that their mortgage is repaid in full from the sale of their property.

As long as the sale price covers the amount remaining on the mortgage, this is possible (and we'll look more into what happens when it isn't later in the piece).

Can I transfer my mortgage to another property?

Usually, this is possible.

This is known as 'porting' and while it isn't actually transferring the money itself on to your new property, it does have great benefits.

Essentially, when you 'port' you are still redeeming your existing mortgage and taking out a new one - but the new one, up to the same amount as your old mortgage, remains on the same terms and interest rate as the ported mortgage.

Whether or not you can port is down to your lender and your circumstances and it's important to remember than if you are borrowing more money for your new purchase, the amount above the ported mortgage would be subject to a potentially different interest rate and different terms.

Porting, though, is popular with homeowners on attractive interest rates as taking out a new mortgage may see you land on a higher rate - and thus pay more interest.

Remember, however, that rates can vary between lenders so do some research into what is available in the current market before deciding to port as there may be a more attractive interest rate available with a different lender.

How does my mortgage get paid off when I sell?

The funny thing about mortgages is you never see any of the money.

But it definitely exists!

When you sell your home, the funds from your buyer (and their mortgage lender) are transferred to your solicitor and they then arrange for a portion of the purchase money to pay off your mortgage.

What is negative equity?

When your property is worth less than your mortgage, you are in negative equity.

And this can make it extremely difficult to sell as your sale price does not cover your mortgage.

Negative equity is less common nowadays as property prices have generally risen over the past 10 years, but at times of economic or political crisis, such as the 2008 financial crash, house prices can drop and this is when some homeowners can find themselves in negative equity.

What do I do if my mortgage has early repayment penalties?

If this is the case and you are buying another property, you could consider porting your mortgage to your new home.

This will avoid any early redemption penalties.

Penalties such as these can be a significant cost for sellers so always check with your lender before committing to selling your property as, sometimes, it can pay to hold off until you are out the other side of your agreed term.

If I port, can I avoid the mortgage application process?

To an extent, yes.

But as you are moving your mortgage on to a different property, your lender will still need to value that property to ensure it is worth more than they are lending.

That means you will almost certainly have to pay a valuation fee, but porting can often mean you avoid product and arrangement fees associated with new mortgages.

Your lender will also reassess you borrowing potential, and debt / income amounts as your personal circumstances may have changed since you took out your original mortgage.

If your lender has concerns, they could stop you porting your mortgage.

Is porting or paying off my mortgage best?

This really depends on you and your own circumstances.

If you are on an attractive rate which beats all other available rates on the market then porting may be a better option.

If you have high early repayment penalties, porting could also benefit you and save you some money.

Weigh everything up.

Essentially, if you save more money by porting then you should port. And vice versa if you save more by applying for a new mortgage.

As always, it's important to seek independent financial advice when dealing with mortgages.