Is It Possible to Sell a House That Has a Secured Loan on It?
Estimated reading time 7 minutes
Are you considering selling your home but still have a secured mortgage on it? If so, you’ve come to the right place. We’ve done the research and put together some information that can answer this and other questions you may have in this situation.
The Short Answer is Yes
The short answer is yes, it is possible to sell your home even though it has a secured loan on it. But there are first some important considerations that you’ll need to understand.
The main consideration is that on the day the sale of your home is completed, the lender must be repaid in full. The lender who has the mortgage will register their charges to keep you from selling without repaying the loan.
But what else do you need to know about selling your home with a secured loan on it?
What is a Loan?
Most people, when they purchase a home, must go to a lender and ask for a loan. In most cases, the loan or mortgage is secured on the home when it's bought.
It’s also possible for homeowners to borrow money and secure the loan against the value of their property. This is called a second mortgage, and the property is held as collateral to satisfy the debt. This is done to ensure the lender gets their money back.
Can I Sell My Home Before the End of the Mortgage Term?
Yes, you can sell your property before the end of the mortgage, but only if the sale price is more than the amount left to repay (which also includes early repayment charges).
Can I Move the Mortgage to a New Home?
The answer is usually yes because this happens on a regular basis. The process is called “porting,” and many mortgages allow homeowners to do this. However, keep in mind that porting usually includes fees, and there are different costs applied, based on whether you are increasing or decreasing the level of borrowing.
The process of porting is the same if you’re switching to a new deal or a new lender. The reason is that you’re requesting to borrow against a different property. In that case, you will need to reapply for the loan, and your affordability is reconsidered. In that case, the deal remains the same with the same interest rate and the same terms. In addition, the home you’re purchasing must be valued by the lender. In that case, you will also have to pay a valuation fee.
I’m Downsizing: Can I Port My Mortgage to a Cheaper Home?
When you downsize and move to a cheaper home, you’ll need to borrow less than you were with the old home. Porting can be a great choice in this situation, especially if the interest rate is lower. If your circumstances haven’t changed since the original mortgage application, then you shouldn’t encounter any problems with satisfying your current lender’s conditions.
However, if your mortgage has an early repayment charge (this may be expressed as a percentage), then the charge will be applied to the difference between the two mortgage amounts.
On the other hand, if the interest rate and mortgage terms stay the same, but you’re borrowing less, the monthly payments may be reduced, as long as the interest rates remain the same.
What Happens to My Mortgage When I Sell My Home?
In most cases, unless you’re porting the mortgage, your current mortgage is paid off when you sell the property. The solicitor or conveyancer does the paperwork, then contacts the lender to get a redemption statement, and then repays the outstanding loan amount with funds from the home’s sale.
Can I Still Port My Mortgage If I’m Not Moving Into the New Home Right Away?
In most cases, the sale and purchase are completed on the same day. That means a ported mortgage deal moves from one property to the other, and you continue paying the lender the monthly mortgage payments.
However, if there’s a delay before you’re the new homeowner, your lender may still allow you to port the mortgage. However, they may require that you pay it within a certain amount of time. This may be up to thirty days; however, it can vary depending on which mortgage company you use.
What If My Lender Won’t Allow Me to Port My Mortgage?
There are three main reasons a lender may not allow you to port your mortgage:
- You may no longer meet their lending requirements. In that case, you’ll have to reapply for a mortgage so your income can be assessed. If your circumstances have changed, it may be you’re no longer able to qualify for the same loan amount.
- The lender may no longer want you as a customer. This may be the case if you’ve made late payments or your existing mortgage will run into retirement. In that case, you may be seen as a high-risk customer.
- It’s possible the property may not meet the lender’s requirements. This may happen, for instance, if the property is not habitable, has a thatched roof, or has a short lease. In this case, your lender may not allow you to port your mortgage.
If you cannot port your current mortgage, it will be necessary to obtain a new mortgage loan. You may need to choose a new lender if your current lender no longer wants you as a customer. If you find yourself in this situation, talking with an independent mortgage broker or a financial adviser can be helpful. They may be able to find the right product that fits your circumstances.
Can I Sell My Home If I’m in Negative Equity?
If you try to sell your current home for less than the amount owed on it, the lender may block the sale. The reason for this is because the lender will have a registered charge on the property. This keeps you from reselling your home without repaying the mortgage.
Summing It Up
If you’re not able to sell your home due to an existing mortgage, then you may want to consider using your savings to pay off the secured debt. Another possibility is to borrow an unsecured loan to repay the debt. However, remember that unsecured debt carries a much higher interest rate. You should only use this method if you can afford to repay. If not, then you risk getting deeper into debt.
In some cases, you may also be able to transfer your debt to your new home. However, you’ll end up with negative equity, admin fees, and more. This could stop you from selling and moving in the future.
There are many considerations when selling your home with a mortgage. However, it is possible to sell your current home and buy a new home. The key is to find the right way through without ending up in further debt. Discover how you can sell your house online, and for free, with Bettermove today. Find out more with out step by step guide to selling your house.