Selling your house can be a difficult process with lots of moving parts from finding a buyer to staging your home and also finding another property.
However, there’s one key detail that’s often overlooked, when do you stop paying the mortgage?
When selling your house you stop paying the mortgage after the final day of closing where you are then no longer the owner of the property. You are responsible for paying the mortgage until your house is sold even if you’ve moved and are paying a mortgage on a new property.
There are also quite a lot of other things to consider with your mortgage when you are selling your property. In this post, I’ll run through some of the key information that it’s worth being aware of when selling your property.
What Happens To Your Mortgage When You Sell Your House?
When you sell your house the proceeds are used to pay off your existing mortgage which your solicitor will process on your behalf. The sale price of your property must be higher than your existing mortgage loan otherwise you’ll owe the difference which is referred to as negative equity.
You may also have the option of porting your mortgage if you’re buying a new property which is when you take your existing mortgage with you to pay for your new house. Whether this is available will depend on your mortgage lender, however, can be a useful way to help minimise moving fees, especially if you have any early repayment penalties.
Do You Need to Tell Your Mortgage Company If You Sell Your House?
You do not need to tell your mortgage lender that you are selling your house until you’ve accepted an offer. However, it may be helpful to make them aware earlier so they can highlight any fees that would be payable or offer you options such as porting your mortgage.
If there are any fees payable that may help influence your decision on when or even if you even sell your property. Early mortgage repayment fees as well as changes in interest rates with the recent hikes could be an unexpected cost which may make keeping your current home more desirable.
Do You Have To Finish The Mortgage Before Selling?
No, you don’t have to finish the mortgage before selling your property, you can sell the property at any time and for any reason. This can be for relocating, wanting to downsize, needing more space or whether you just feel like a change.
If you are considering moving before you’ve paid off your mortgage it’s worth finding out what fees you’ll have to pay in case it’s worth waiting a few months before selling or could even make you change your mind entirely.
What Happens If You Sell Your House And Don’t Buy Another?
If you sell your house and don’t buy another property, any equity you’ve built up over the years of owning the property will be transferred to you upon completion of the sale minus any costs that are payable. Costs can include estate agent fees, legal fees and other closing costs or taxes.
The equity that you’ve built up is the difference between the final sale price and the size of the mortgage debt you have on that property. This difference can be from the initial mortgage deposit you put down when you bought the property, the capital repayments you’ve paid as part of your mortgage payments and any appreciation in the price of the property.
Below is a table that lists out a number of the expected costs when selling a property. There could still be other costs and fees not listed although hopefully, this will give you a good idea of the costs that could occur.
|Costs When Selling A Property
|Estate agent fees (1%-3% of the final sale price)
|£2,000 to £10,000
|Conveyancing fees (legal)
|£800 to £1,300
|Removal company cost (priced on moving requirements)
|£1,000 to £2,500
|Energy Performance Certificate (EPC)
|£60 to £150
|Mortgage exit fee
|£50 to £300
|Capital Gains Tax (if applicable)
|Early mortgage repayment charge
|1% to 5% of the outstanding mortgage
|Porting a mortgage – valuation fee
|Up to £500
After all of these costs and fees have been paid, you will be left with a sum of money which is yours to do with as you please. You can use it to buy another property, save it for retirement, treat yourself to a holiday, the choice is yours.
However, if you do have any questions about what you should do with the money, especially if it’s a large sum of money, definitely consider speaking to a financial advisor. Some financial advisors charge a one-off fixed fee to do a review and give you your best options which could earn you more money than leaving the money sitting in a bank earning little to no interest.
Can You Stop Paying Your Mortgage When House Is On The Market?
No, you need to keep making your regular monthly mortgage payments while your house is on the market as you are still responsible for the debt until it is fully paid. If you stop paying, you risk missing a payment which can incur late fees and negatively impact your credit score.
If you want to know more about the penalties for paying your mortgage late, I’ve written this post about late mortgage payment penalties that you may find useful.
You stop paying the mortgage once you’ve completed the sale of the property and the proceeds are used to repay the mortgage lender. However, if you are in negative equity you could still owe the mortgage lender money even after the sale of the property which I’ll run through below.
For example, if you pay your mortgage on the 1st of the month and complete the sale of the property on the 17th, you will only have to pay 17 days worth of the mortgage payment that month which your mortgage lender will calculate.
What Happens If You Sell A House In Negative Equity?
If you want to sell your house that’s in negative equity you will first need your mortgage lender’s permission as you won’t get enough money back from the sale to pay back the money you owe on the mortgage. You will then be given a bill for the shortfall and if you don’t pay you can be taken to court.
When discussing the sale with your mortgage lender, they will often offer you options around repayments of the outstanding balance. This could include repaying the debt over a number of years at a reasonable interest rate.
Your mortgage lender will want to help you in this situation because if something goes wrong, such as you are unable to repay the money or declare bankruptcy, they could lose money as well as risk their reputation for unfairly treating their customers.
If you are in this situation and are considering declaring bankruptcy, please treat this as a last resort and make sure to get advice from a financial advisor or mortgage advisor so you understand all of your options. Mortgage lenders are often very amicable, especially if they’re at risk of losing money. Bankruptcies can significantly impact your credit score and stay with you for over 6 years which can affect many areas of your life.
Can You Buy A New Property Before The Old One Is Sold?
Yes, you can buy a new property before you sell your old property, however, in order to do so, you’ll have to qualify for borrowing the money to own two properties. This is not possible for a lot of people as they’ll need a new deposit and also the income to support the second mortgage.
Houses are often sold in chains, this is where the sale of one property is linked to the purchase of another in a chain. These property selling chains can often become very long, which increases the risk that something will go wrong which can delay everyone in the chain from buying their new property.
There are many things that can go wrong in a property transaction from sellers no longer wanting to sell their property to buyers dropping out of the transaction due to not being able to secure funding or just changing their mind about buying.
This is why it’s often seen as a positive to not have to sell your property to buy a new one and be chain free as you become a less risky buyer. This leads a lot of people to sell their property and move into rented accommodation to put themselves in the best position to buy.
Does The Solicitor Pay Off The Old Mortgage?
Yes, your solicitor pays off your old mortgage as they handle the money from the people that buy your house. If instructed they can also deduct fees due at completion, then the remaining funds will be paid into your bank account unless you’re rolling the money into a new property.
Overall, you stop paying the mortgage on your property when the sale has been completed and your mortgage has been paid off. At this point, you no longer owe your mortgage lender any money and no longer need to continue to make mortgage payments.
If you do have any specific questions related to selling your property, make sure you speak to a mortgage advisor or get legal support. I’ve written this post for general guidance only aiming to give you a good overview of the topic and hopefully help you know what questions to ask or what costs could be expected when selling your property.
If you are wanting to get a mortgage advisor, this post I’ve written on what questions to ask a mortgage advisor may be helpful. The more you can prepare ahead of time so you know exactly what questions to ask and what you could have researched yourself will mean you get the most value out of their time (and make them work for it!).
I hope this post has been helpful and good luck selling your property!
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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