What Happens To A Mortgage When You Sell A House?

When you come to sell your house that is still under mortgage, the proceeds of the house sale will usually be used to pay off the outstanding balance of your mortgage. However, depending on whether the sale price is higher or lower than the balance you owe against your mortgage changes your options moving forwards. 

Here, we will take you through every scenario and each option you have so you know what happens when you sell your house with a mortgage.

Is it possible to sell a property that is still under mortgage?

Yes, however, you do have a few options open to you. You can choose to sell your property as planned and then use the remaining proceeds of the sale to cover the remaining balanced owed against your current mortgage, or you may choose to ‘port’ your mortgage to another property if you are buying a different property.

Usually, the mortgage is repaid in full from the proceeds of the sale, as the sale price will often cover the amount remaining on the mortgage.

If the sale price is higher than the outstanding balance of the mortgage, then you’ll receive the difference as profit.

If the sale price is less than the outstanding balance of the mortgage, then you will need to cover the difference in order to cover the full mortgage balance. Your solicitor will handle the mortgage repayments from the proceeds of the house sale.

What is negative equity, and how does it impact what happens to my mortgage when selling a house?

If the property you are selling is worth less than your current mortgage, then you are in negative equity. Having negative equity can make it quite difficult to sell your home, as your sale price will not completely cover the costs of your mortgage.

Although this scenario is much less common these days due to the rise in property prices over the last few years, house prices can drop and that is when some homeowners can find themselves with negative equity.

What does it mean to ‘port’ your mortgage?

Porting your mortgage means you are transferring your mortgage to another property. This doesn’t mean that you are transferring the money itself on to a new property, when you ‘port’ a mortgage you are still redeeming an existing mortgage and taking out a new one. 

However, the new mortgage will remain on the same terms and interest rates as your last mortgage. This makes the idea of ‘porting’ an ideal choice for those who may have better interest rates on their current mortgage. 

The ability to port your mortgage depends on your mortgage lender and your general circumstances, and any amount that goes above your ported mortgage conditions will be subject to different interest rates and terms and conditions.

Will porting my mortgage help me to avoid the mortgage application process?

Yes it can, however, with porting you are moving your mortgage to a different property meaning that your mortgage lender will still have to value the new property to ensure that it is worth more than the mortgage they’re lending. 

This means that you will be subject to paying a valuation fee, but you will have also avoided product and arrangement fees that new mortgages bring with them.

Your mortgage lender should have also reassessed your credit score and borrowing potential, as this may have changed since you originally took your mortgage out with them.

Is it better to port my mortgage or pay my mortgage off?

The best answer to this is entirely dependent on your personal circumstances and what will work better for you financially. 

If you have a better interest rate and situation with your current mortgage, then it may be better to port your mortgage. However, this won’t be suitable for everyone. If you also have higher penalties for early repayments, then it could also be worth porting your mortgage.