How can I sell a house with a mortgage?
It is normal to be assailed by doubts when thinking of selling a home with a mortgage: the mortgage is a charge, and it is better to sell properties without charges. We need to keep calm: this is a very common situation - 60% of property owners who sold in 2018 were able to pay off the loan. And the sale can go smoothly if we do it well. We just need to consider a number of aspects.
The first thing is to try to sell for more than we owe the bank, so we can repay the loan when the sale goes through. This means we can repay the loan on the day we sign the deed before the notary, who will then be able to certify that the property is free of charges.
This means we need a certificate of the outstanding debt (or pending balance), which we can request from the bank. This certificate shows the payments made and pending, and the costs of repaying the mortgage.
When we have sold our house, we have to pay off the mortgage debt, request a certificate of zero balance or debt from the bank and give it to the notary or the buyer, who should cancel the entry in the Land Registry. However, we have to pay the repayment costs.
What happens if we sell the property for less than we owe?
Unfortunately, we will have to continue paying off the loan. This means allocating all the money from the sale to paying off the debt, and paying off the remainder through a new loan from the bank, with the corresponding arrangement fee and interest, and different clauses to those in our mortgage.
Another option is subrogating our mortgage loan, i.e. keeping the mortgage but changing the owner. We need to give the bank thirty days' notice of this.
This benefits the buyer, who can buy the property for less than if it were free of charges. This also saves on the paperwork and costs that would arise from arranging a new mortgage, as some costs, such as the risk analysis and subrogation, would be borne by the seller, and the bank would be responsible for a lot of the costs under the new Mortgage Law.
However, this means that the new borrower would not be able negotiate the conditions of their loan or choose the bank.
Pay off the mortgage before selling
Finally, we could pay off the mortgage before selling our home.
This means there would be no charge on it. To do this, we would have to:
- Request a zero balance or debt certificate, sign the mortgage closure before a notary (with a representative of the bank, at no costs to it).
- Request Form 600 for stamp duty from the Treasury.
- Cancel the registry entry and register it with the Land Registry. This possibility could add another €600 to the repayment of our debt.
Steps for selling a home with a mortgage and buying a new one
- The first step is to calculate our home's market price.
- We need to consider how much it cost us, how much of the mortgage we still have to pay and the price we are going to sell for.
- We can request an appraisal.
- Once we have done this, we can request an outstanding balance certificate. Our bank will do this at no charge.
- Finally, we need to decide how we want to carry out the sale, based on the options we have just considered.
What is a bridging mortgage?
This option has become very popular since 2000, the year when this was extended to moving homes.
Bridging loans are designed to deal with these changes, allowing us to take out a mortgage on the new property without paying off the previous mortgage. This also includes an initial grace period so that the monthly payments do not rise too much while the initial home is being sold. But there are some downsides, such as higher repayments if we don't sell as quickly as planned.
In the worst case, this could result in us losing both of the properties, as they are both used to guarantee the mortgage. We also run the risk of selling our property for less than the outstanding debt.