What Happens if You Sell Your House and Still Owe Money?

If you’re keen to make a start on selling your house asap, but you still owe money on the mortgage, can you still proceed? Does it matter how much equity you currently have in your property? What if you are in negative equity?

These questions can feel complex and intimidating, but the solutions are often very simple indeed…

Owing Money After You’ve Sold Your House

Much will depend on the type of debt that you owe.  There are two types of loans that you should be aware of:

• Secured Loans – these loans are held against the value of the property under what’s known as a ‘first charge’.  The most common secured loan is a mortgage. Many people take out further loans against the value of the property (provided there is enough equity at the time).  Other times, credit card and loan companies can convert the debt owed so that they can recoup their money when you decide to sell your house;
• Unsecured Loans – these are usually personal loans that are not secured (collateralised) against the value of the property.  These can include personal / private / car / student / payday loans, credit cards and overdrafts.

In order to sell your house, you will need to pay off all the mortgage – also known as redeeming the (secured) loan.

With unsecured loans, as long as you are keeping up with your repayment obligations, there will not be any demands for full repayment after you’ve sold your property.

Either way, particularly with the high rates of interest many unsecured lenders charge, many people choose to pay off these loans using the proceeds of a house sale.

Can You Sell Your House for Less Than You Owe?

If you are in negative equity – i.e. if the secured debt is higher than your property’s value – what happens if you sell your house for less than you owe?

It is certainly possible to do this, but you must seek your lenders permission before taking these steps. It is worth noting that you will be required to pay the difference between the amount for which the property has sold and the amount you still owe on the mortgage.

Perhaps you have savings to cover the shortfall or you may be able to take out a temporary bridging loan in order to do this. In certain situations, the amount of negative equity may be secured against a new property purchase.

“Porting” a Mortgage (for a House in Negative Equity)

Porting effectively means transferring the debt owed from one property to another.

If you owe more than what your existing property is worth, the challenge is that the lender will want you to clear the initial debt before agreeing to port.

Again, it would usually be a case of finding the money to cover the shortfall.  The lender will then usually agree to port the mortgage – especially if you’re buying a smaller property

You won’t have to pay any amount relating to an early “exit” or repayment. You will, however, be subjected to credit checks and other processes – just as you were when you took out your previous mortgage.

Can I Sell my House if I Have an Interest-Only Mortgage?

Many mortgage lenders allow you to “port” their product even if it is interest-only.

You’ll need to show that you’ll be able repay the relevant amounts – and prove how this will be done. Otherwise, the process remains straightforward.

Can I Sell My House with Mortgage Arrears?

It is absolutely possible to sell a property if you are in arrears with your mortgage lender.

The only circumstances in which this would not be advisable are if you are declaring bankruptcy, if you are in negative equity or if you move into accommodation that demands higher monthly expenses than your previous mortgage.

If I Sell My House for More Than I Owe, Can I Keep the Profit?

The answer is yes! If you receive an offer that is higher than your mortgage amount, you can feel free to accept it. It means you’ll have built up a significant amount of home equity, and can take the difference as your profit.

Indeed, selling a property is a common method of clearing mortgage debts. The approach is particularly effective if you have built up a good amount of equity during your time there.

Note that, if you’re selling before the mortgage term ends, there may well also be Early Redemption Charges (ERCs) to pay as well – not to mention the property sale costs (estate agency, solicitors moving etc.).  However, as long as you have lived in your house (and not used it for investment purposes or as a second home), there will be no taxes to pay when you sell.

Whilst most homeowners use an estate agent to sell their property, an increasing number look to avoid all the hassles that come with an open market sale.

Property Solvers have over 2 decades of experience in the fast house sale space.

We can provide you with a no obligation up front cash offer worth up to 75% of your home’s value. If you accept, we can buy your home in as few as seven days. There will be no solicitors’ fees or estate agent charges to pay.