Mortgages When Moving: Understanding Your Options
When you’re planning to move, the status of your current mortgage becomes a key factor and there are two main paths you can consider:
Porting Your Mortgage
Porting your mortgage involves transferring your existing mortgage to a new property. This is often a viable option if your current mortgage terms are favourable, particularly if interest rates have increased since you initially secured your mortgage.
Here are a few considerations:
- Interest Rates: If your current mortgage rate is lower than the prevailing market rates, porting your mortgage may save you money in the long run.
- Penalty Avoidance: Porting your mortgage could help you avoid early repayment charges that may apply if you were to pay off your existing mortgage before the end of its term.
- Lender’s Approval: Remember that porting a mortgage requires your lender’s approval, which often involves property appraisal and possibly a new affordability assessment.
Not all lenders offer the ability to port mortgages, so you will need to check the terms of your agreement or check with your mortgage provider to see if this service is available to you.
Starting a New Mortgage
The alternative to porting is to start a new mortgage when you move. This is usually the course of action when your existing mortgage is coming to an end, or if new mortgage products are more suitable to your financial situation.
Here’s what you need to consider:
- Better Terms: If current market conditions offer more favourable rates or terms, starting a new mortgage might be a financially sound decision.
- Flexibility: A new mortgage might provide more flexibility in terms of loan amount and repayment schedule.
- Charges: Be aware of any penalties or charges for early repayment of your existing mortgage, as well as fees associated with setting up a new mortgage.
Quick Sale Options
When selling to a reputable cash buyer, the scenario might play out differently. A cash buyer typically has the funds ready to go, meaning they can close the deal quickly, allowing you to pay off your existing mortgage sooner.
Here are the benefits:
- Speedy Process: Cash sales are usually much faster than traditional house sales, which can mean paying off your mortgage and ending those monthly payments more quickly.
- Financial Certainty: You’ll know the exact amount you’ll receive for your house, helping you to plan your next steps accurately, whether that’s paying off other debts, investing the money, or applying it towards your next property.
- Stress Reduction: Selling to a cash buyer can reduce the complexities and stresses often associated with the traditional house-selling process through an estate agent, allowing you to focus on your next move.
As always, it’s vital to seek independent financial advice when making significant decisions about your mortgage when moving house as each situation is unique and should be considered with your individual circumstances in mind.
What Happens to Your Mortgage When You Sell a House?
The majority of people will have outstanding mortgages against their property when they come to sell, but what actually happens to your mortgage largely depends on your home’s selling price and the remaining balance on your mortgage.
Ideally, the sales proceeds should cover your remaining mortgage debt, with some extra to put towards your next purchase or other needs, but this doesn’t always happen. Regardless of which situation you find yourself in, the most important thing to remember is that your mortgage payments continue until the ownership of the property is officially transferred to the new owner, which is usually when the sale finalises.
When the sale price covers the entire balance of the mortgage
When the sale price covers the entire balance of the mortgage, your mortgage debt and the outstanding balance are fully cleared once the sale is complete. The payment from the sale is used to pay off your lender first, settling your mortgage debts and outstanding debt.
After all selling and closing expenses are accounted for, any remaining money is yours to keep. This surplus can be used towards purchasing a new property, investing, or any other financial needs you may have.
When the sale price doesn’t cover the existing mortgage loan
When you sell your home and the sale price doesn’t cover the existing mortgage loan, you’re dealing with what’s known as a short sale or negative equity. In this situation, you owe more on your mortgage than the sale price of your home.
This could have implications for your credit score, and in some cases, you may still be responsible for paying the remaining balance, known as the deficiency.
As always, it’s essential to seek advice from a financial advisor when dealing with a potential short sale.