What happens to your mortgage when you sell your house?

Moving to a new home is an exciting adventure, but selling a house can also be a daunting task. As you start planning your move, one of the burning questions on your mind might be: what happens to your mortgage when you sell a house?

When it comes to your mortgage, you have options when selling your house. You can choose to apply for a new mortgage, or you can transfer your existing mortgage loan to your new home, which is known as porting.

When you sell your house, you typically use the proceeds from the sale to pay off the mortgage in full. The amount of mortgage you’ll need to pay depends on the outstanding balance of your mortgage loan at the time of the sale.

If your house value is higher than the remaining mortgage balance, you'll therefore have equity in your home. You’ll also receive the remaining proceeds after paying off the full mortgage.

If the sale price of your home is less than the remaining mortgage balance, you'll have negative equity and may need to obtain your lender's approval for a 'short sale' to make up the difference.

It's important to consider any extra costs associated with paying off your mortgage early. It’ll be beneficial to review your mortgage agreement and consult with your lender before selling your house.

What does porting mean?

Now, porting essentially means you’re transferring your current mortgage to your new home. For example, if you’re looking to sell your home, maybe you want something bigger or in a different area. It might be worth sticking with the same mortgage lender, but moving the mortgage to your new home.

Can you port your mortgage?

Yes you can! It might come as a surprise that many mortgages are actually portable, making it much easier for those who are interested in moving. Porting is pretty flexible and might work for you!

However, there are a few things to be wary of, these include:

1. Your lender might not approve porting your mortgage

• There are no guarantees your lender will approve porting.

• There is also a chance you won’t qualify for it, which could be due to a change in your circumstances. For example, you could earn less or have higher outgoings.

2. You might not be able to borrow more

• You could be moving to a more expensive property and so will need more cash. However, your lender might not allow you to borrow more, especially if you’re close to the maximum amount they can lend.

3. You might end up securing a loan at an unaffordable interest rate.

• Because of porting, you’ll be tied to one lender and you could have little choice of interest rates to choose from.

Should you port your mortgage?

It might be in your best interest to port your mortgage. Porting will allow you to smoothly move into a new home without worrying about your mortgage. There are several benefits of choosing to port your mortgage as opposed to applying for a new mortgage application.

Benefits of porting your mortgage!

1. Keeping your existing mortgage deal: If you decide to purchase a home that is of a similar price to your current one, porting can help you avoid higher interest rates on a new mortgage.

2. You can save money: By keeping your current mortgage, you can avoid early repayment charges or exit fees that you might face if you switch to a new lender.

3. A simpler process: Porting your mortgage can often be a simpler and smoother process than applying for a new mortgage. Your lender already has your financial information, and may require less paperwork, therefore you’ll have more time to focus on other aspects of your move.

4. Maintaining your credit score: Applying for a new mortgage can impact your credit score, by porting your existing mortgage, you can avoid this.

5. Flexibility: Porting your mortgage can give you the flexibility to move to a new property without having to pay off your existing mortgage.

It's worth noting that there may also be some drawbacks to porting your mortgage, and it's crucial to carefully consider your options and seek professional advice.

Potential downsides to porting your mortgage

As much as porting your mortgage can be helpful to those moving to a new home, it can also have its drawbacks!

These include:

1. Limited options: Porting your mortgage means that you’re restricted to your current lenders products and rates. You may miss out on better deals from other lenders.

2. Lower borrowing capacity: If you’re moving to a more expensive property, you might not be able to borrow the additional funds you need to cover the higher price of the property.

3. Extra fees: Although you may avoid early repayment charges by porting your mortgage, your lender could still charge fees for the process.

4. Property valuation: Your lender might require a new valuation of the property you’re buying, and if the value is less than expected you could end up paying a higher deposit or having a smaller mortgage.

5. Terms and conditions: When considering porting your mortgage, it's important to keep in mind that your existing terms and conditions may not be suitable for your new property. This could include factors such as a different repayment term or loan-to-value ratio, which may require renegotiation with your lender.

If you’re concerned about getting a valuation, have a look at our free Online GetAgent Valuation Tool to find out an estimated price of your home on the spot!

Ultimately, it's your decision whether you want to port your mortgage or apply for a new one. However, as previously mentioned it's best to seek advice from professionals such as mortgage brokers, conveyancers and financial advisors.

In what circumstances are you unable to port?

Simply transferring your mortgage to a new property is not always straightforward. Your lender will need to reassess the loan from scratch and ensure that the financial figures still make sense.

The most common factors that might prevent you from being able to port your mortgage are:

• Your situation has shifted: You're now earning less income, have increased monthly expenses, or have changed your employment status (e.g. from permanent to contract).

• Your credit rating has declined: You've failed to make timely payments on your mortgage or another form of borrowing, or you might have mortgage debts.

• The property you're eyeing falls outside the lender's criteria: For instance, it's located above a fast-food establishment or features an unconventional design.

• The lender's assessment of the property's value is too low: This may restrict your borrowing capacity or your ability to qualify for the new mortgage product you're seeking.

What happens if your lender refuses to approve porting your mortgage?

If you’re unable to get out of your current mortgage, you may need to wait until your mortgage has ended to get a new one.

The waiting period will depend on the type of mortgage contract, for example if you’re only tied for two years, it might be worth waiting. This will help you to avoid any early repayment charges.

Can you port a mortgage to a more expensive property?

Yes you can! You can use the current equity you receive from your old property and potentially any savings for the deposit of your new home. However, if you still run short you may need to add additional borrowing to keep up with the new mortgage.

Equity refers to the gap between the sale price of your property and the outstanding balance on your mortgage.

Preparing for porting your mortgage

Before making any decisions about selling your current property and buying a new one, it's important to assess whether you’re eligible to port your existing mortgage or obtain a new one.

Once you've determined that you're eligible to port your mortgage, it's important to start the process of selling your current property in order to show potential sellers that you're serious about making a move.

To ensure a successful sale it's important that you hire an experienced estate agent who has sold properties similar to yours.

It's also important to keep in mind that you won't receive a definite mortgage offer until you've provided the details of your new property, so be cautious about making any contractual commitments until then.

What steps are involved in porting a mortgage?

Here are the steps you can take to port your mortgage:

1. Contact your lender: You should contact your lender as soon as possible to inform them that you’re planning to move and want to port your mortgage. Your lender will be able to provide you with information on the process, as well as any fees or charges that may apply.

2. Check your eligibility: Your lender will assess your eligibility for mortgage porting. This will depend on a number of factors, including your financial situation and the value of the property you’re planning to buy.

3. Find a new property: Once you’ve been approved for mortgage porting, you can begin your property search. When you find a new property, you'll need to provide your lender with the details of the property, including its value and any outstanding mortgage.

4. Complete the application: Your lender will then ask you to complete an application for mortgage porting. You’ll need to provide details of your current mortgage, including the outstanding balance, interest rate, and term.

5. Legal process: Once your lender has approved your application, you’ll need to work with your solicitor to complete the legal process. This will involve transferring the mortgage from your old property to the new one.

Can you switch to a new mortgage instead?

Yes! You can definitely switch to a new mortgage, however it's important to take into account that you could be paying extra fees such as early repayment charges if you switch early.

If you can’t afford the potential fines, it may be best to stick with porting your mortgage. However, there are both positives and negatives of applying for a new mortgage.

Benefits of applying for a new mortgage:

1. Lower interest rates: If you currently have an older mortgage, you may be paying a higher interest rate than what's available in today’s market. By refinancing your mortgage, you could potentially take advantage of lower interest rates. In turn, this can save you thousands of pounds in interest payments throughout the span of the loan.

2. Lower monthly payments: Refinancing can also help you lower your monthly mortgage payments, allowing you to free up extra cash for expenses and savings.

3. Access to equity: If you’ve been paying off your mortgage for a while, you might have built up some equity in your home. Refinancing can allow you to access the equity, which you can use on whatever you please, such as home improvements.

4. Switching lenders: If you’re not happy with your current lender, refinancing can allow you to switch to a better lender with better terms.

While there are many positives of applying for a new mortgage, there are also some things you need to look out for. As much as you don't want to be stuck living in your current home, applying for a new mortgage may be expensive, especially with the high fees associated with it.

What to look out for when applying for a new mortgage

1. Credit score impact: When you apply for a new mortgage, the lender will check your credit score. This can temporarily lower your overall score.

2. Fees and charges: You will be required to pay fees, including legal fees, survey fees, and solicitor fees.

3. Early repayment charge: If you decide to leave your mortgage early you’ll have to pay an early repayment charge. Typically, an early repayment fee is between the range of 1% to 5% of the outstanding balance you owe on your mortgage agreement.

4. High interest rates: If you have a poor credit history and a high level of debt, you might be offered a mortgage with a high interest rate.

5. Lengthy application process: Applying for a new mortgage can be time-consuming, involving multiple stages, including pre-approval, property valuation, and legal checks. If you’re looking to buy a new home and apply for a new mortgage, it might be best to start the process earlier to avoid any delays.

6. Risk of rejection: There is always a risk that your mortgage application might be rejected, especially if you have a poor credit history, or are self-employed. However, if you’ve been self-employed for at least two years and can show proof of income, you should have no problem getting a mortgage.

It's important to note that a rejected mortgage application can affect your credit score, making it harder to get approved for credit in the future.

Selling a house with a mortgage

When selling a house with a mortgage, it's important to consider the possibility of a mortgage shortfall. This occurs when the sale of the house does not generate enough money to pay off the mortgage debt in full.

In such cases, it's important to communicate with your mortgage lender or an independent mortgage broker to find out what options are available. You may be able to negotiate a repayment plan to cover the shortfall.

They can help you understand the terms and conditions of your mortgage, including any potential fees associated with paying off your mortgage early or how to deal with any mortgage debt.

With their expertise, you can make informed decisions about porting your mortgage or applying for a new one.

Summary: Porting might be in your best interest!

Porting your mortgage may be in your best interest if you have a good mortgage rate and want to avoid early repayment charges or exit fees. It can also be a simpler process since you won't need to apply for a new mortgage and go through the approval process again.

Porting can also help you maintain your credit score by keeping your existing mortgage account open and active. If you're moving to a new property and want to avoid the cost of paying off your existing mortgage, porting can offer the flexibility to do so.

Seeking advice from professionals like mortgage brokers or financial advisors can also help you make the best decision for your situation.

Overall, porting can be a great option for those who want to keep their existing mortgage and save money in the process.