What Happens To Your Mortgage When You Sell Your House and Buy Another
Buying a house is one of the most significant decisions in your life. It’s also one of the most important. Your house is a great place to live.
Having a mortgage can make it easier for you to afford your next house and allow you to take out a loan to cover the costs of the house.
But what happens to your mortgage when you sell your house and buy another?
Do you still have to pay the same amount towards your mortgage as you did before selling your home?
Mortgage rules have changed since the housing crisis, so you must know what happens to your mortgage when you sell and buy a new house.
Buying a new property is a big financial decision, and selling your current property can be daunting.
For example, if you’ve recently sold your home and bought a new one, you might be worried about how the sale of your old house will affect your new mortgage.
If you want to know what happens to your mortgage when you sell and buy a new house, read on for some answers.
Should you Pay Off My Mortgage Before Selling your House?
If you’re considering selling your house, you likely want to do it as soon as possible. If you’re lucky, your existing mortgage may give you a nice incentive to pay off your home early and avoid the penalties.
Selling a house is not a one-time task. You will need to keep making adjustments as you proceed through the process.
If you have been in your current home for a while and think it is time to move on, you can do so with a few simple steps.
Here are some advantages to paying off a mortgage early:
Reduce interest fees
You might find it tempting to pay off your loan early as a borrower. This is especially true if you avoid the higher rates with an extended loan term.
However, interest accrues on your home loan throughout the loan duration, which can be 15 to 30 years. That’s why it’s better to delay the payoff so you can save on interest charges as much as possible.
Frees up monthly funds
Your savings account can grow a little each month when your mortgage payments are made. Then, instead of using those extra funds for something else, you can put them toward something you need or want. That will make the future much brighter, and you will have more money to contribute to other areas of your life.
You are selling your house before buying a new one.
A common strategy for those who want to move or buy a new dream home is to sell their existing house first.
This will give you more cash in your pocket when looking for that dream home. You will also save yourself from dealing with the financial strain of a pending house sale.
It also gives you a steady stream of money to spend on a new property without worrying about a mortgage payment for a while.
While it is possible to own both houses together, it’s not as simple as it sounds. A dual-home strategy requires careful planning to maintain financial stability.
As for the logistics of dealing with such expenses as mortgages, it’s best to start looking into one-home ownership now.
The huge downside is that selling your house can leave you homeless. In addition, when you sell your home before buying another one, it can force you to ask for help from your parents or friends.
It can be more challenging if you have a family, pet, and number of belongings.
Buying a house before selling
If you’re buying a house, there are several advantages to doing so before selling your current residence. The primary benefit is that you can ensure your new home has everything you need before moving in.
This allows you to take your time moving your things over. It also avoids the frustration of not knowing whether your current residence will be available when you need it.
Buying your new home first is one of the most expensive decisions.
That can be a challenge when you’re already burdened by your current home loan, besides having to finance two mortgages (on your existing and new home) and possibly paying out a big chunk of cash to your closing agent.
You will also need to have a sizable down payment, and then there are the costs of moving and maintaining both properties.
Get the best mortgage available now if you haven’t yet closed on that house. Once you close, it is better to start looking for your dream home.
Frequently Asked Questions
What happens when I sell a house before the mortgage is paid off?
A prepayment penalty is an additional fee the lender will charge the borrower if they sell their home before the mortgage is paid off.
Prepayment penalties are calculated differently depending on the type of loan.
The fee is usually 2-5 per cent of the outstanding principal balance but may be higher or lower depending on your lender.
Can I sell my home before the end of my mortgage term?
Yes, you can sell the house as long as your sale price exceeds the remaining balance on your mortgage plus any additional costs for early repayment of your loan.
Can I take my mortgage to my new home?
Yes, you can take your mortgage to your new home. It is called Porting. However, Porting your mortgage means transferring your current mortgage over to another property.
This is a process where the same loan can be transferred to multiple homes to get the best loan rate.
Will porting my mortgage cost me any money?
If you are porting a similar amount of mortgages from one property to another, you will probably not be required to pay any additional fees.
On the other hand, if your mortgage is worth significantly more than what you currently owe, you may have to pay an additional fee to make up for it.
If you have questions about buying and selling property, don’t hesitate to contact us or pop in for a chat. Matthew James is always on hand to help!
