Applying for a mortgage is already an important commitment in itself and it will last several years, during which a person’s life changes. If for whatever reason, against all odds, you have to change home but you still have a mortgage to pay off, this is a simple guide for you!
Selling house with an active mortgage
You need to change houses, move to a larger or a different area, so you need to both sell your home and buy a new one and figure out how to deal with your active mortgage. "Is it better to sell your property or buy a new house first?" deals with the first point and is useful to clear up doubts.
Here the central theme is the second one, you want to sell the house but you still have the active mortgage. For this situation, banks and lenders, which grant mortgages, have several options that can suggest you depending on your condition.
There are three possibilities:
- settlement of the mortgage before the deed of sale: implies being able to close the mortgage before arriving at the deed and signing the deed of sale that transfers the property. This is the fastest but the most complicated situation because it requires great liquidity or you have renegotiated the mortgage and interest with the bank at a more affordable amount;
- early repayment of the mortgage by sale: the mortgage is closed using the money received from the sale of the property. At the same time as the transfer of property, the buyer, paying the house, gives you the money needed to pay off the mortgage;
- assumption of the mortgage by the new buyer: with the transfer of ownership the mortgage is passed to the buyer, who only has to settle the remaining installments unpaid by the previous owner.
Closing the mortgage early implies having enough money to leave the old house and the mortgage behind to think only about the future house. In most cases, it is difficult to get savings with a mortgage taken out, so the last two situations are increasingly implemented.
Early repayment of the mortgage by sale
The mortgage may be extinguished during the deed and not necessarily before. This situation allows you to pay in a single solution the last installment of the mortgage using the money obtained from the property’ sales.
During the deed, in which the notary and a representative of the bank takes part, the buyer delivers you a cashier’s check equal to that of the remaining mortgage. The bank, after receiving the money, issues to you, the seller party, a receipt of extinction and proceeds to cancel the mortgage.
If you opt to close the mortgage early, it is important to be able to better coordinate the parties involved. Specifically, it is good to make sure that the buyer’s bank and your bank have the same information, in order to register the mortgage property and transfer the money to close the mortgage.
Acceptance of the mortgage by the new buyer
This is the second practice that we anticipated: the new buyer takes over the mortgage already active and you started earlier. Generally, the buyer pays the remaining installments of the mortgage leaving you free to open a new loan for the new property. But the assumption of the mortgage is valid only from the deed and can be of two types:
- cumulative: you remain bound to the bank and the buyer because in the event, the latter fails to pay the installments you will have to take over again you, previous owner;
- release: you no longer have any obligations towards the bank, the buyer and the old house.
This only happens if the buyer accepts the terms and conditions of the mortgage originally stipulated and if for the bank, the new buyer, has all the necessary characteristics to take over the mortgage without risk of insolvency. Indeed, the bank or lenders must verify the buyer’s income guarantees and their credit history, in order to be able to grant them the mortgage. Finally, the bank must issue a release in which it relieves the old owner of all liability.
The advantage for you seller is that you can quickly close the deal and no longer have to solve the issue of mutual access and mortgage on the house. While, it is important for the buyer to evaluate the pros and cons because if on the one hand you save on the initial activation costs, on the other the conditions chosen by you, may not be entirely advantageous for them.
Selling a property is an operation that requires attention especially if carried out simultaneously with a mortgage still active and the purchase of a new home.
To learn more about the Kaaja method of buying and selling, visit the website or call us.