Few people can afford to buy a house outright and so need to arrange finance to cover the cost. They’ll generally arrange a mortgage, which is a long-term loan secured on the property.
The lender will have an involvement in the property until the loan, including accrued interest charges, is paid in full. That involvement will appear in the title to the property and means the property cannot be sold without the lender being notified.
Arranging Repayment of the Outstanding Mortgage
When you want to sell a property that has an outstanding mortgage, you must notify the lender of your intention. Do this by submitting a discharge of mortgage form via a solicitor or conveyancer. This should occur at least one month before the settlement date for the sale to give the lender sufficient time to process it.
The process following the submission of the discharge form will depend on the circumstances:
- If the property is being sold for more than the outstanding mortgage amount, which is the normal situation in a rising market, the lender will generally be paid the outstanding amount and the balance, after other costs, will be available to you.
- In a weak property market, the sale value may be less than the amount owed, a situation known as negative equity. This usually only occurs when the amount borrowed is relatively high as a proportion of the purchase cost (known as the loan to value ratio) and the property has been owned for only a short period. In this case, the lender will require you to cover the shortfall before the sale can proceed. This may require assets to be sold or a further loan to be arranged.
- If you are moving to a rental or a smaller property, any surplus amount will be transferred to your bank account to use as you wish. This is often a useful ploy to part-finance retirement.
- If you are buying a more expensive property, an additional mortgage will need to be arranged to finance this. Alternatively, the lender may allow a substitution of security where the mortgage is transferred to the new property and possibly increased.
Apart from paying off the old mortgage, you will need to pay various costs out of the sale proceeds:
- a discharge request fee for the lender that covers the cost of processing the discharge request
- a break fee to the lender if a fixed rate home loan is repaid early; this can be a sizeable amount since it partially offsets the lender’s lost income from interest charges
- conveyancing fees for the sale of the property
- estate agent’s fees and costs for organising the sale.
Following the Correct Procedure
Successfully selling a house with a mortgage means following the correct procedure and making sure all arrangements are made in plenty of time. You’re more likely to achieve this with the right help, which includes a knowledgeable and professional estate agent.
At LocalAgentFinder, we have plenty of local agents in our networks who can competently handle your sale. With their help and expertise, you’ll achieve the sale quickly and cost-effectively, including the mortgage transfer.