If you have a mortgage on your home, you still own it.
And that means you can sell at any time – so long as it’s affordable to do so.
Often homeowners can be confused over what happens to their mortgage when they sell up.
This guide explains the various options open to sellers when it comes to their mortgages, alongside some helpful tips and answers to common questions.
Selling a house with a mortgage
In simple terms, when you sell your home you have two options:
- Repay your outstanding mortgage
- ‘Port’ your existing mortgage on to your new home
So, when I sell my house what happens with the mortgage?
If you are purchasing a new property you can either redeem your existing mortgage and apply for a new one on your new property, or take your existing mortgage with you and apply it to your new home.
Can I transfer my mortgage to another property then?
Yes, that’s essentially what ‘porting’ is.
Most mortgages are portable, but your lender may not agree to yours being ported – this will depend on affordability.
How is my mortgage paid off when I sell?
Firstly, you need to make sure your sale price covers your outstanding mortgage.
If it doesn’t, you are in ‘negative equity’.
This is where your property is worth less than the mortgage secured on it and will almost certainly mean selling is not financially viable.
If your property sale covers your mortgage debt and you are not porting, your solicitor will pay off the loan with the proceeds of your sale.
The money left after all costs have been paid could be used as a deposit on a new property if you are taking the next step.
Mortgage redemption: Things to consider
As well as ensuring your sale price covers your mortgage, you should also consider any early repayment penalties imposed by your lender.
If you are in the middle of a certain mortgage product or offer, there is always a chance you could face an early repayment penalty.
This could see you facing an additional cost to pay back the loan and this should be factored into your budgeting for your sale.
How does mortgage porting work?
Porting is essentially when you transfer your existing mortgage to a new home.
It may be an attractive option often because you retain your current interest rate and this may not be available if you take out a new mortgage.
However, because you are borrowing against a different property, your lender will need to value that property – meaning that cost still falls on your as it would if you were applying for a new mortgage.
Your lender will also reassess your borrowing potential and affordability on the new property and your current circumstances – which is where, sometimes, porting no longer becomes an option if your lender deems your application unaffordable.
Although your mortgage is technically transferring to your new property, in reality it is redeemed and a new loan issued on the same interest rate and terms.
That means if you are borrowing more to fund your new purchase, you could see the ported amount on one interest rate and the additional amount on another.
Mortgage porting: Things to consider
While porting is usually available on most mortgages, it’s not always accepted by lenders.
Some of the reasons a lender may refuse porting include:
· You not satisfying their lending criteria due to a change in circumstances (i.e. income, employment status or debt level)
· You have previously missed payments or are considerably older and approaching retirement
· Your new property does not meet lending criteria (i.e. it has a short-term lease, or is uninhabitable in its current state)
How much does porting cost?
If you are borrowing the same amount for your new home then porting your mortgage should not incur any costs other than a valuation fee on your new property.
However, some lenders do charge an arrangement fee for porting – always check with your lender beforehand.
If you are increasing your borrowing, you may have to pay a product fee for the amount on top of the ported figure.
And even if you are decreasing your borrowing, you may have to pay an early redemption fee on the difference between the two mortgage amounts.
Should I port or apply for a new mortgage?
This depends on your circumstances.
Make sure you compare the costs or porting against the costs of repaying your mortgage and applying for a new one.
You should check:
- Possible fees for porting
- Arrangement and product fees on a new mortgage
- The cost of valuations on your new property
- Early repayment charges on your existing mortgage
- Any exit fees
- The interest rate on your current mortgage against the rate on a new one
If the total saving you make by applying for a new mortgage is higher than the cost of porting then you should consider making a new application
However, if you are on a low rate of interest or are facing high early redemption penalties then porting may be the best option for you.