Many homeowners have a mortgage which often begs the question of what happens to it when moving up the housing ladder.
Most will sell their home to buy the next one, but what does that mean to the mortgage and what does the lender want?
The issue can be fairly complex due to issues surrounding the mortgage. In this article, we’ll take a look at some of the common questions that arise when moving up the property ladder.
Most homeowners facing this challenge can become frustrated with details they need to review, check and get right from the outset. Hiring multiple parties like solicitors and surveyors also complicates matters as part of the process.
Could I sell my property and keep the mortgage?
In short, yes. However, like anything property related, it’s not that simple. For example, the process of selling a mortgage and transferring it to a new property is called porting.
By porting, you still retain the existing mortgage and effectively take out a new one to address the differences. You can find there are some benefits to this process and why porting is a popular option for many homeowners.
Your lender will consider your current circumstances and decide if you can port. The new mortgage often has a new interest rate and terms. Depending on the financial climate, this may be better than your preexisting mortgage.
The different interest rates can be of interest to many trying to reduce the overall cost of the mortgage. You’ll, however, need to do your research and read the offer. Porting using your existing lender may not have the best interest rate compared to other lenders. In some circumstances, you’ll be able to shop around.
How do I pay off the outstanding amount of my mortgage when I sell my home?
- Assess how much you still need to pay
In order to pay off your mortgage when you’re selling your home, you need to first work off how much is still outstanding.
Your mortgage lender will need to know the property is paid off before you move. Ask your lender if the sale of the property will cover the outstanding amount.
If the sale doesn’t cover the outstanding debt, you’ll need the lender’s permission before selling.
- Repay the debt outstanding
Once you know the debt outstanding, it’s time to repay this amount. If the house sale covers the debt, then you can sell your home. You’ll also get an understanding of what money you’ll make during the sale of the property.
If the selling price doesn’t cover the outstanding debt, you’ll have to repay the remaining amount somehow. This is called a mortgage shortfall and must be paid before you can buy the next property. If you don’t, you’ll face legal action by the lender.
If you have a mortgage shortfall, you can ‘short sell’ the property if the lender agrees. You’ll be asked, however, to fill in numerous documents to ensure you’re still accountable for the debt outstanding.
A good idea is to speak to a short sale agent to ensure it’s worthwhile to sell the property short. They can also suggest if the lender is likely to agree or not to the short sell.
Can I switch my mortgage to another property?
You have two options when selling a property where the mortgage hasn’t been paid off in the UK. You either port or pay off the mortgage.
The porting process means moving your current mortgage to the new property and adding a new mortgage.
Many homeowners find porting the mortgage useful, especially when content with the terms and interest rate stated in the contract. There are also no early exit charges from the lender to consider.
If, however, you find that interest rates and terms have changed favourably for you to enter into, it’s worth paying off the existing mortgage and starting anew.
While you’re considering your options, remember there’s no guarantee your lender will agree to port. Lenders make their money on interest payments and fees associated with the fine print of the contract. So if porting is worse for them, don’t expect them to agree.
Many homeowners moving up the property ladder do so to get more room, often due to family requirements. Unfortunately, this usually means additional borrowing during the move up unless funds can exist somewhere else.
A mortgage lender could agree to port but not the additional money needed for the new property. But, on the flip side, it might be that you’re still not making enough money to cover your monthly liabilities and the additional overhead of monthly mortgage repayments.
In this scenario, you may be provided with an arrangement fee and higher interest rate with now two mortgages to complete. In such a circumstance, ask yourself if porting is a wise decision or if paying everything off and starting with a new mortgage is a better option. You’ll spend a long time lamenting your decision if you’re wrong.
Could my lender cancel my mortgage?
Your lender can cancel your mortgage or any offer. This could be through a recent credit check or line of questioning determining that you can’t pay the mortgage requested. The cancellation is in the interest of both parties, so don’t think ill of the lender.
You should note that the lender can withdraw their offer even after contracts are exchanged. This could be because of a change of circumstance, application error, or bad credit rating.
To bypass this scenario, you can do a few things to protect yourself. First, do not borrow any additional money once you receive the mortgage offer. If you do, it could be flagged to the lender and a second credit check ordered. Alternatively, if you have no other recourse, ask the lender before taking out a loan.
Before contacting a lender, you can try to check your credit rating through a 3rd party. If something is flagged, you may be able to rectify it before going to your lender. Having good credit could also mean the difference between getting a mortgage or not.
Do I get my deposit back after selling my home?
You may find that property sales fall through for one reason or another. If it does, you may be wondering who gets the deposit. The easy answer, like any contract, is whichever party hasn’t breached the contract.
This is often any party that pulls out of the contract after contracts have been exchanged. You may be charged additional fees to cover damages if this is deemed to be you.
Often UK deposits in contracts are 10% of the contract price, meaning you could lose a large chunk of money if a sale falls through.
How to sell your home faster
Shyft could be your saving grace as we offer fair value prices for your home. You pay nothing to us, and we don’t claim a hidden fee from a reduced price. Instead, we use the value of surrounding properties to base the value on, and you get money in your account in 7 to 28 days guaranteed.