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Home › Sell Property › What Happens to Your Mortgage When You Sell?
If you have a mortgage on your home and want to sell, you may be wondering how this will impact your home loan. You might also consider whether to sell or buy first and how the whole process works. Our comprehensive guide includes everything you need to know about what happens to your mortgage when you sell.
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When you take out a mortgage to buy a home, your lender registers a formal interest in the property, which is recorded on the property title. If you decide to sell, you will need to repay your mortgage in full because the lender will no longer be able to use your property to regain their funds.
Paying your mortgage in full and releasing the property title from the lender’s interest is called mortgage discharge. To do this, you need to:
Your lender will take fees at settlement for the discharge of your mortgage.
When you sell, you need to consider any lender fees for paying off your mortgage. These can include:
At settlement, the buyer and buyer’s lender will pay the full price for your property. The solicitor will release the following fees to the appropriate recipient:
The remaining money from the sale of your property will either go to the owner of the new property you want to purchase or to your bank account.
Many homeowners buy a property after selling their own property. During the sale settlement period, you will discharge your mortgage as normal and apply for a new home loan at the same time. Your lender will then discharge their interest on the title of the home you’re selling and register an interest on the title of your new home.
You can choose to apply for a new home loan with your current lender or a different lender.
Yes, some lenders offer home loan portability when you sign up for a mortgage. This allows you to keep your existing loan when you sell and simply transfer the lender’s interest to the title of your new property. This is called substitution of security. Your mortgage may increase or decrease:
If your lender allows home loan portability, you may be able to refinance or ask for a lower interest rate at the time of transfer.
Sometimes you find yourself in the unfortunate position of owing more on your mortgage than what your property is worth in the current market. This is called negative equity.
A lender will not allow settlement to occur if they are unable to recoup the full outstanding mortgage amount. You will need to pay the difference from your own funds or sell some of your assets to make up the shortfall.
If your lender recoups the difference between the mortgage and sale price from your mortgage insurer, your insurer will then request the money from you.
In this situation, it might be better to hold on to the property until its market value increases. You might even be able to rent it out and cover some of the ongoing costs of ownership. For more on renting out your property, click here.
Depending on your situation, buying or selling first could be the right option for you. Before you list your home or go house hunting, it pays to know the pros and cons of each.
If you sell first, the new owners might agree to rent the property to you until you find a property to buy. However, some buyers need a place to live themselves, so this is not always a feasible option.
Timing property deals can be tricky but, with a good real estate agent, it is possible to buy and sell at the same time. This is called simultaneous settlement.
For this to work, you, your buyer and the seller of your new property will need to be flexible. If one party can’t fit in with the schedule of the other two, then simultaneous settlement won’t work.
Despite the challenges, many homeowners do manage to settle simultaneously, which gives you the best of both worlds. You:
If you can’t manage simultaneous settlement but have found your dream home and simply can’t wait, a bridging loan can help bridge the gap between when you buy and when you sell.
A bridging loan is temporary and charges a higher interest rate, so it isn’t the right option for everyone. Read more about simultaneous settlement, bridging loans and other options in our guide to buying and selling at the same time.
If your hard work has paid off and you are mortgage free when you decide to sell your property, the entire sale price comes to you at settlement, minus any selling fees, like conveyancing fees.
But, for the vast majority of homeowners, owning a property means a large debt to their lender, which can be costly if you decide to discharge the mortgage early since lenders rely on interest payments to stay in business. An experienced real estate agent can save you money throughout the sales process, which is often enough to cover the cost of an early mortgage discharge. Compare agents in your area and see how they can help you achieve a successful sale.
Capital Gains Tax When Selling Property
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