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  1. Blog
  2. Can you sell a house before the mortgage is paid off?
Conveyancing help and guides
18 December 2020

Can you sell a house before the mortgage is paid off?

Rosie Hamilton
Writer & Researcher
Woman in white t-shirt lifting cardboard moving boxes, while other male home mover in hoodie carries large painting wrapped in bubble wrap

Table of contents

  1. 1. Selling a house with a mortgage
  2. 2. Can you sell a house before the mortgage is paid off?
  3. 3. What happens when you sell a house with a mortgage?
  4. 4. Do you have to pay off your mortgage when you sell your home?
  5. 5. Is it better to pay off my mortgage before selling my house?
  6. 6. Negative equity

Selling a house with a mortgage

Mortgages are a long term commitment. You normally have to sign up for 20 to 30 years of repayments. But, what if your circumstances change and you need to sell your home? Is it possible to move house before your mortgage has been fully paid off?

Below we look at the different ways you can go about moving house if you're still paying off your mortgage. Along with some of the extra things you'll have to consider when you make your move.

Can you sell a house before the mortgage is paid off?

Yes, you can sell your house at any time after you've purchased it - even if you're still repaying your mortgage and the mortgage isn't paid off.

It's pretty common for homeowners to sell before they've fully paid off their mortgage. However, if it's a route you want to take there are a few extra things to consider.

Most importantly, you'll still be responsible for paying off the amount remaining on your mortgage. This will usually come out of the proceeds of your sale, but if your home has gone down in value since you bought it, you'll have to cover the difference with your savings.

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What happens when you sell a house with a mortgage?

In many ways, when you sell a house with a mortgage which you're still paying off, the process is very similar to a standard property sale. Your estate agent will advertise your home, and negotiate with potential buyers as usual.

The key differences come at the conveyancing stage (the point when ownership is officially transferred to the buyer & money changes hands).

Your conveyancing solicitor will act as the go between for you and your mortgage lender. Once the buyer has paid for your property, your conveyancer will then use that money to pay your mortgage lender.

Keep in mind that you will have to pay both the outstanding amount on your loan, and any charges that might be due for ending your mortgage term early too. Your conveyancing solicitor will also pay these costs from your sale proceeds.

Only after your mortgage lender has received all the money they are due, along with anyone else who needs to be paid (for example your estate agent, and the lawyer themselves), will your conveyancer give the remaining amount to you.

If the sale price of your home is less than the amount you still owe to your mortgage lender, this is called 'negative equity'. In these cases, all of the money from the home sale goes directly to the mortgage lender. You will then receive a bill for the remaining amount. If you don't pay within a set time frame, you will be liable to go to court.

Read more about the process a selling a home here.

Do you have to pay off your mortgage when you sell your home?

Yes, technically if you're selling your property you will have to pay off any outstanding amount on your mortgage, along with any penalty charges this might incur - such as a mortgage exit fee, or early repayment charge.

However, if you're buying a house at the same time as selling your old home, you may be able to 'port' your mortgage to your new home instead.

When you ‘port’ a mortgage you take the rates and terms of your loan with you when you move house.

Technically, porting does not actually mean transferring the loan from your home to another property. You’ll still repay anything left on your old mortgage, and then take out a new one secured against your new home. But, it will have the exact same terms as your old mortgage, and you won't have to pay any early repayment charges or exit fees. So, in practice it'll feel like you're just taking the loan with you.

Read more about porting your mortgage, here.

Is it better to pay off my mortgage before selling my house?

There's no hard or fast rule about whether it's better to repay your mortgage before you sell your house.

On the one hand, it can be more expensive to sell a property with a mortgage. You'll have to consider things like early repayment charges, exit fees, and the possibility of being in negative equity - on top of the normal costs of selling .

On the other hand, staying in a house that doesn't fit your personal situation can bring it's own costs too, both financially and emotionally.

It's important to weigh up the pros and cons before deciding what's right for you.

For example, you might want to consider:

How long you've lived in the property, and the type of loan you have. Both of these factors can have an impact on how expensive it is to sell your home before you've paid your mortgage off.

As a general rule, the longer you've had the property the cheaper it is to exit your loan agreement.

  • Fixed rate mortgage

If your existing mortgage is a fixed interest rate deal, you'll usually have to pay an early repayment charge (ERC) if you decide to sell before the fixed term is up. This can be as much as 5% of the value of your loan. If you have £200,000 left on your mortgage loan, for example, this would mean you need to pay and additional £10,000. Sometimes the percentage you'll have to pay decreases the longer you've had the deal. Check the terms of your loan with your mortgage provider to find out how much you'll owe.

In many cases fixed rates last for between 2 and 5 years. If possible, it can make financial sense to wait until the fixed term has ended before you sell your home. If this is not possible, you may also be able to avoid the early repayment charge by porting your mortgage to your new home.

  • Standard variable rate mortgage

Generally, if you have a standard variable interest rate mortgage you won't have to pay an early repayment charge. However, you may still have to pay an exit charge.

  • Interest-only mortgage

An interest-only mortgage can be one of the most expensive to exit from early. Because you have only been paying interest, you will be liable for the entire cost of your mortgage when you sell your property. On top of this, as you haven't built up any equity in your home, your early repayment charge - which is generally a percentage of your remaining mortgage - will be significant extra cost.

If you're thinking of selling your home before you've repaid an interest-only mortgage, make sure to talk to an independent financial adviser first.

However, sometimes life doesn't fit into neat patterns, and what might appear the most financially viable option on paper may not actually be practical in reality.

It's just as important to think about your personal circumstances when deciding whether to sell a house.

Consider the reasons you need to move house, as well as the financial implications. Perhaps you need to relocate for work, or you're downsizing to somewhere more affordable. Think about the value of your new property in facilitating these changes - and how important this is in comparison to the costs associated with selling with a mortgage.

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Negative equity

Being in 'negative equity' occurs when the sale price of your home is not enough to cover the amount remaining on your mortgage. This is a fairly rare occurrence in the UK, but it can happen if you're selling: a new build home that you bought recently; a house in a state of disrepair; or during a period of recession.

If you end up making less on your property than is left on your loan, you will need to make up the difference by paying the remainder of your existing mortgage with your savings.

If you're unable to pay the difference your mortgage lender is allowed to take you to court and order you to pay the difference. They may even have rights over any new property you buy.

There are however some options if you're unable to pay off your mortgage from the proceeds of your sale:

  • A Short Order

If you've received a property valuation that suggests your home will sell for significantly less than your remaining mortgage, start a conversation with your lender. In some cases they will be able to offer a 'short order'. This is an agreement that allows you to repay less than your full loan.

If this is not an option, your lender may be able to offer a repayment plan so that you don't have to pay the difference all in one go.

  • Bankruptcy

If your mortgage is not your only source of debt, and you are unable to make your repayments, you might decide that declaring bankruptcy is the best option for you.

Of course, this route should be considered as a last resort.

Before you decide to move forward with a bankruptcy order, discuss your position with an independent financial advisor, for example the Citizen's Advice Bureau. They will be able to provide support tailored to your specific situation.

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