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Can I Sell My House Before Paying Off My Mortgage?

Are you thinking about selling your house, but you haven’t finished paying off your mortgage yet? Or maybe, you’re still in a fixed term and are wondering if that also means you have to stay put until it ends. Whether you’re interested in porting your mortgage or have no idea what that is, you’re in the right place! We’re going to answer all your questions and guide you through what you need to do to be ready to sell your home, no matter your current circumstances.

How Mortgages Work When You Move

If you want to move and you have an outstanding mortgage, don’t worry. Most people move while still owing money on their mortgage – that’s why most people don’t live in the same home for 25 years before moving on. But what happens to a mortgage when you move? One of two things can happen:

You pay off the mortgage with the sale

The most common thing that happens when you sell your old home with a mortgage is the money you get from the sale is used to pay off the outstanding mortgage. The amount of money you owe on the mortgage never goes up from what you first borrowed – it’s either the same (in the case of an interest-only mortgage) or less, thanks to your monthly payments. If everything has gone to plan, your house will be worth more than it was when you bought it, so you’ll have more equity in the home.

So in this circumstance, you sell your home, pay back the mortgage lender, and then you’re free to buy a new house with the equity from your current home (or not, if you aren’t going to buy somewhere new).

For example, say you bought your home for $250,000, with a $30,000 downpayment 5 years ago. The money you owe the lender will be $220,000 or less, depending on the type of mortgage you have and how much you’ve paid off in those 5 years. If the house is now worth $300,000, you’ll have an extra $50,000 in equity in the home, meaning you’ll walk away from the sale with $80,000 or more to take on to use as a deposit on your next home or use for another purpose.

Note that you don’t have to complete this entire process before finding a new home to buy – most people find their next home before the sale of their current home is complete.

You “port” the mortgage

This option is less common, but some mortgage lenders allow you to “port” your mortgage. This is essentially where they allow you to take your mortgage with you, and apply it to your new home. Generally speaking, it’s not worth porting your mortgage, because a new mortgage will usually be better for a new situation, and porting a mortgage won’t save you a whole lot of hassle. Unless there’s a really good reason to keep your mortgage, it’s best to pay it off and get a new deal for your new home.

Can I sell my house before paying off my mortgage?

Yes, in fact doing so is more common than not. As we discussed above, you’ll simply use the proceeds of the house sale to pay off the remaining balance of the mortgage.

Can I sell my house while my mortgage is in a fixed term?

Many people choose fixed-term mortgages so they know what to expect, and the good news is they don’t change your rights on selling your home. You can still choose to move whenever you want.

Of course, with mortgages, there is a catch to selling your house during a fixed term – most fixed-term mortgages have an “early repayment charge”, sometimes referred to as an “early repayment penalty.” What this charge is depends on your mortgage agreement, so make sure you find out what it is before you move forward. Sometimes they charge a percentage of the overall mortgage, sometimes it’s a few months’ interest.

Do you have to pay off your mortgage when you sell your house?

Yes, unless you have agreed with your lender to port your mortgage, you will have to pay off the mortgage with the proceeds from your house sale. Mortgages are tied to the property they’re for – they’re not like personal loans that are tied to you. When you sell your home, you must pay off the mortgage or make the necessary arrangements to port the mortgage.

Is it better to pay off your mortgage when you sell your house?

As we’ve already discussed, you have to pay off your mortgage when you confirm the sale of your home. But what about paying off your mortgage before you put your home on the market?

Being mortgage-free offers some big benefits. For one, it can give you peace of mind, knowing you don’t have to deal with a mortgage company at all when you sell your home, and you don’t have that debt on your shoulders. Less debt always feels good!

It also means you own your home outright, and so you will get all the money from the sale, minus any selling costs (realtor fees, closing costs, etc).

That said, unlike other forms of debt, mortgages aren’t generally placed high up on people’s priority list of debt to get rid of. And, if you got a mortgage before interest rates recently increased, you may still be benefiting from a low-interest rate. If you’re considering paying off the rest of your mortgage before moving, only do so if you have savings that can pay it off, and figure out if it will be worth it to you. If you are on a variable rate mortgage that has recently skyrocketed, you may decide it’s time to axe the remaining mortgage so you aren’t essentially being charged for a debt you don’t need to maintain.

However, if you’re looking to move soon and you’re not paying a huge amount in interest, you may decide to let the mortgage be until you sell your home.

What if my mortgage is worth more than my house is?

If your mortgage is worth more than the value of your house, then your house is “underwater” – in other words, you have negative equity. This is never a good situation to be in and is fortunately not that common. It usually only occurs if you bought your house for more than market value before the house prices dropped, or the house has become damaged with no insurance to pay for repairs.

Regardless, if your house is “underwater”, you have a few options:

  1. Wait – If you’re not in a rush to move, it’s usually best to wait until the market improves. Over time, either you’ll pay off enough of your mortgage that you’ll be in positive equity, or house prices will improve enough that the same happens (ideally both).
  2. Pay the difference – If you’re desperate to move, have some savings, or are willing to take out another loan to pay off the mortgage, you can decide to take the loss and simply pay off the mortgage in its entirety. This will mean you lose money on your house sale. 
  3. See if the mortgage company will agree to a “short sale” – A short sale is where your mortgage company agrees to sell the house for less than you owe on the mortgage, meaning that while you don’t get any money from the sale of the home, you also don’t have to pay for the loss on the property, either. Want to learn more? See our blog post on How to Do a Short Sale for My House in Massachusetts.

How to Sell Your House Fast

No matter how you decide to deal with your mortgage, you’ll be able to sell your house as planned and move on. If you’re looking for a quick and hassle-free way to sell your house, the fastest way to do so is with a professional cash buyer like us.

We’ll offer you a cash offer for your Massachusetts home and can close in as little as 2 weeks if you want to move fast. To get started, simply contact us and we’ll send you our no-obligation cash offer.

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