Selling your home while still paying off a mortgage brings up a lot of practical questions.
- Will you need to pay off the entire loan before selling?
- Can you move your current mortgage to your next home?
- What about those early exit fees you’ve heard about?
These are common concerns for many homeowners looking to move.
The good news is that selling a house with a mortgage is completely normal. In fact, most people sell before they’ve paid off their home loans.
This guide will walk you through the process, from checking your current position to receiving your sale proceeds.
Understanding Your Mortgage Position
Before making any decisions about selling your home, you need a clear picture of where you stand with your current mortgage.
This includes finding out the exact amount you owe and the specific terms of your agreement.
Checking Your Mortgage Balance
To find out exactly how much you need to pay back to your lender, you’ll need to request a ‘redemption statement’.
This document shows the total amount required to clear your mortgage completely, including any exit fees or early repayment charges that might apply.
You can get this by calling your lender directly or checking your online account if you have one.
Bear in mind that redemption statements usually have an expiry date, often 30 days, after which the figures may change slightly due to interest.
Your Home Equity
The difference between your property’s sale value and your outstanding mortgage is your equity.
For example, if your home is worth £500,000 and you owe £300,000 on your mortgage, you have £200,000 in equity.
This equity, minus selling costs, represents the money you’ll have available for your next move.
Your equity changes over time as you pay off your mortgage and as property values fluctuate.
When calculating what you’ll walk away with, subtract all selling costs from your equity, including estate agent fees, solicitor fees, Energy Performance Certificate, removal costs, and any early repayment charges.
Understanding Your Mortgage Terms
Different types of mortgage deals come with different conditions when you sell.
If you’re on a fixed-rate deal, you might face early repayment charges if you sell before the fixed period ends. These charges can be significant – often between 1-5% of the loan amount.
Variable rate mortgages usually have more flexibility, with fewer or no early repayment charges. But it’s important to double check either way.
Many mortgages offer ‘porting‘, which means taking your existing mortgage deal to your new property.
However, this isn’t automatic and depends on your lender’s criteria and your personal circumstances. Some mortgages can’t be ported at all, so check your original mortgage offer or ask your lender.
If your mortgage has a ‘tie-in period’, you’ll face penalties for paying it off early, even through selling. These periods often match fixed-rate terms but can sometimes extend beyond them.
Settling Your Current Mortgage
When your house sale completes, there is a transfer of monies between your solicitor and your lender.
The Mortgage Redemption Process
Your solicitor or conveyancer will deal with the legal aspects, and the money.
They’ll request an up-to-date redemption statement from your lender as the sale nears completion.
On completion day, your buyer’s funds are transferred to your solicitor.
They then use this to pay off your current mortgage directly to your lender before sending you any remaining money. This happens automatically as part of the sale process, you won’t need to arrange the mortgage payment yourself.
The timing works smoothly in most cases.
Your solicitor ensures the funds are transferred to your lender on the same day as completion, which means your mortgage is settled immediately.
After the payment, your lender will issue a document called a DS1 form which confirms the mortgage has been cleared and removes their legal charge on the property.
Receiving Your Sale Proceeds
After your mortgage is paid off, any money left over is yours.
This amount is your equity less various selling costs.
These costs include your estate agent’s fee, solicitor’s fees, and other expenses like Energy Performance Certificate (EPC) charges and exit fees.
If you are selling and buying on the same day, like most of us do, your solicitor will keep hold of the net equity amount, and use it towards your new property.
If you are not buying another home, the solicitor simply sends the funds straight to your bank account.
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Your Options When Selling
When selling a home with an existing mortgage, you have several ways to handle the mortgage side of things.
Repaying Your Mortgage in Full
The most straightforward approach is using the proceeds from your house sale to pay off your mortgage completely. This gives you a clean slate for your next move, whether that’s buying another property, renting, or living mortgage-free.
Full repayment could make sense if you’re downsizing to a cheaper property, taking a break from homeownership, or if your current mortgage deal isn’t worth keeping (perhaps because interest rates have fallen since you took it out).
After repayment, your lender will provide confirmation that the mortgage has been settled. Your solicitor will then register the removal of the lender’s charge with the Land Registry, meaning the property is officially free from your mortgage.
Porting Your Mortgage
If you like your current mortgage deal, perhaps because you’re on a competitive interest rate, porting might be worth considering.
This means transferring your existing mortgage terms to your new property.
Despite what many people think, porting isn’t a guaranteed option.
In reality, you’re applying for a new mortgage with the same lender, under the same terms as your current deal. This means your lender will reassess your income, outgoings, credit score, and the new property itself.
The ‘porting’ bit relates to the special interest rate that you have, not the whole mortgage. If the deal is portable, you can take it with you, to a new property.
The main advantage of porting is keeping beneficial interest rates and avoiding early repayment charges.
However, there are limitations.
If you need to borrow more for your new home, the extra amount will be at a different interest rate. If you’re moving to a property your lender considers higher risk, they might decline your porting application altogether.
Not all mortgages are portable either, so check your mortgage offer document or speak to your lender before making plans based on this option.
Read more: How does porting a mortgage work?
Taking Out a New Mortgage
Sometimes starting fresh with a new mortgage makes more sense than porting.
In fact, this used to be the only option available, as lenders haven’t always offered the ability to ‘port’ a mortgage deal.
This might be useful if better deals are available in the market, if you want to change lenders, or if your circumstances have changed significantly.
Taking out a new mortgage gives you the freedom to shop around for the best deals and to choose terms that suit your new situation.
Dealing With ERCs
If selling means paying early repayment charges, you’ll need to decide if moving now is worth the extra cost. Sometimes it makes more financial sense to wait until your fixed-rate period ends before moving.
However, if you need to move urgently, have found your perfect next home, or property prices are changing rapidly, paying the charge might be justified.
You can calculate whether potential savings or gains elsewhere outweigh the repayment charge.
Don’t forget that moving home can take 3-6 months before you move in, and it’s the completion date that triggers repayment of your mortgage.
So if your ERCs are due to finish within that timeframe, you could apply for a new mortgage and plan for it to start when the exit fees have ended.
Planning Your Mortgage Strategy
Taking time to plan ahead and seek advice will help you to develop the right strategy.
Timing Considerations for Your Sale
Smart timing can make a big difference to your moving costs.
If you’re on a fixed-rate mortgage with early repayment charges, check when these charges reduce. Many lenders drop the penalty amount each year of the fixed term – for example, from 5% in year one to 1% in year five.
If your fixed rate is due to end soon, waiting until that date could save you thousands of pounds. However, you’ll need to balance this against other factors like property market conditions and your personal reasons for moving.
Remember that securing a new mortgage offer usually takes several weeks, and these offers generally remain valid for 3-6 months.
Planning your mortgage application in sync with your sale can help things run more smoothly.
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When to Speak to a Mortgage Broker
Getting advice early, ideally even before putting your house on the market, gives you a clearer picture of your options.
An independent mortgage broker can review your current mortgage terms, calculate potential early repayment charges, and explain whether porting might work for you.
They can also give you an accurate idea of how much you could borrow for your next purchase, which helps you set a realistic budget for house-hunting.
An important check early on is whether your lender will accept the new property you are interested in. While all lenders will be OK with standard houses etc, problems could occur with:
- New build houses
- Freehold flats
- Thatched roof
- Listed buildings
- Non-standard construction
For complex situations like moving with negative equity, buying before selling, or needing a mortgage in retirement, brokers can find specialist lenders and products that high street banks might not offer.
Unlike going directly to a bank, a broker can search over 100 lenders to find the best deal for your specific circumstances.
Can you move home with a fixed rate mortgage?
In this article, we’ll explain everything you need to know about moving with a fixed rate mortgage, including how to limit the effects of any fees and why speaking to a broker is always the best idea.
Next Steps
When selling a mortgaged house, you have several options:
- paying off the mortgage completely
- porting it to a new property
- taking out an entirely new mortgage
Each approach has benefits and drawbacks depending on your current mortgage terms and future plans.
Understanding your current position is the first step – including how much you owe, any early repayment charges, and whether your mortgage is portable.
Frequently Asked Questions
Yes, your mortgage must be repaid when you sell your house. This happens automatically during the sale process, with your solicitor using the proceeds from the sale to pay off the outstanding mortgage before passing any remaining money to you.
Many mortgages are portable, meaning you can transfer your existing deal to a new property. However, this isn’t automatic – you’ll need to reapply and meet your lender’s current criteria. Not all mortgages can be ported, so check your mortgage agreement or ask your lender directly.
No. Even though you are borrowing from the same lender, they will carry out all of their normal checks and underwriting. If your situation is not acceptable to them then the application will be declined.
Most likely, yes. If you’re still within a fixed-rate period, early repayment charges typically apply even when selling. These charges usually range from 1-5% of the mortgage balance, decreasing the closer you get to the end of the fixed term.
This is called negative equity. You’ll need to cover the shortfall yourself or negotiate with your lender for a “shortfall sale.” Some lenders might allow you to transfer the shortfall to a new mortgage, but this depends on your circumstances and the lender’s policies.
Yes, but you’ll need to borrow additional funds to cover the difference. This extra borrowing will be on a different deal with different interest rates. Your lender will assess whether you can afford the increased borrowing based on your current income and circumstances.
Sometimes. If you’re porting your mortgage to a new property, you might avoid early repayment charges. Some lenders also waive charges in special circumstances like financial hardship. Otherwise, the only way to avoid them is to wait until your fixed or discount period ends.
A bridging loan provides short-term finance to “bridge” the gap between buying your new home and selling your existing one. You borrow enough to help purchase your new property, then repay the loan when your current home sells. These loans have higher interest rates than standard mortgages.
Porting means transferring your existing mortgage deal (interest rate and terms) to a new property. Getting a new mortgage means applying for a completely different product, potentially with a different lender. Porting keeps your current deal but requires reapplication; a new mortgage gives you freedom to shop around but probably means paying early repayment charges.
