Selling your home may seem like a simple process – unfortunately that isn’t always the case. If you’re selling up to buy another property, be it a larger home, to downsize or to move region, country or even continent there are many details to take into consideration, one of which is your mortgage.
We’ve put-together this brief but detailed guide on the important details to arrange and what options are open to you.
What happens to your mortgage when you sell your home?
If you’re selling your home and not buying somewhere new, then the process should, be relatively simple. Once the property is sold, survey done, contacts signed and monies transferred, your solicitor or conveyancer will arrange for the outstanding balance of your mortgage to paid, along with all your additional costs and charges, before depositing the final, remaining balance into your account.
Among the charges could be early redemption fees. These are a type of ‘exit fee’ charged by a lender if you repay your mortgage before the end of an agreed fixed-term arrangement. If you only have a few months left of your fixed-rate and/or term deal, then those charges should be relatively small. If, however, you’re selling with a couple of years left on the mortgage term, then those fees could be pretty large and you’ll need to be aware of them when you’re making your calculations.
For those of you selling your home in order to purchase a new one, there are a few more details you’ll need to bear in mind and act upon.
First of all, regardless of what happens, if you need a mortgage for your next home, unfortunately, you can’t simply keep your existing mortgage with the same repayments and contracts. That’s right, you will need to re-apply for a mortgage, even if it’s with the same lender and your mortgage is a portable one.
The reason for this is so the lender can ensure they’re providing you with the right mortgage type and amount for your circumstances, needs and affordability score. This is true whether you need a bigger mortgage, smaller loan or one of a similar amount.
If you’re on a fixed term mortgage deal with a number of years left to run and a hefty early redemption charge, you may be able to move your mortgage with you and not incur any redemption fees – although you will probably need to pay arrangement fees. Again.
Take a look through your existing mortgage paperwork and see if there are any details on it being a portable mortgage. While it can be a helpful detail to discuss and highlight to your mortgage provider, be warned it doesn’t necessarily mean you will definitely be able to keep it and avoid high charges. Likewise, if your mortgage isn’t portable, that doesn’t 100% rule out the possibility of moving your existing mortgage to your new home.
Once you’ve familiarised yourself with your existing mortgage paperwork you could contact your mortgage provider and discuss your requirements with them. If your current mortgage product is still widely available, then keeping it and extending it to cover your new, larger mortgage (if applicable) – subject to your new application being successful – shouldn’t be too difficult.
If the broader UK economic backdrop has changed and interest rates are lower, however, and there are better mortgage deals available, you still have the opportunity to take advantage of lower interest rates. One way in which you can do this is to keep the fixed-term part of your mortgage for a proportion of your new home (this is only possible if you need a larger mortgage) and take out a new mortgage at a better rate on the remaining part of the mortgage. This will only really be possible with the same lender, though, so you may miss out on the best deals on the market.
If you’re not able to that, then you’ll need to consider your other options.
Switching your mortgage deal
If you’re not on a fixed-term mortgage deal, then the world is your oyster! While it might seem like the easy option to stay with your current mortgage provider, taking the time to shop around could save you a lot of money.
You can do your own research, take a look at all the available products and work out which would be best for you. You’ll need to include arrangement fees and other costs or offers included in the mortgage to be able to make a full comparison. Lots of websites make this easier by having already done the hard work for you. The Mortgage Advice Bureau is one such site, so why not take a look at the mortgage calculator and best deals sections there.
Using a mortgage broker is another possibility, even for those of you who are experienced and understand mortgages and the different products. As experts in their field they should know the best deals available for you from across the whole market, pretty quickly. And, once you’ve given them all the details they need, they will than process any applications for you, without you having to provide those same details again. This can be incredibly helpful if you don’t have much time to do the research, number crunching and form filling.
Get started organising your new mortgage sooner rather than later
Another detail to bear in mind if you’re selling your current home and moving to a new one, is to get your financials, including your mortgage, in place early on. It’s worth speaking to a broker or doing your online research before you’ve even found your next home.
By starting work on your mortgage early on you’ll:
- Have a clearer idea about how much you can borrow
- Know what sort of mortgage rates and products are on the market
- Take important financial decisions earlier on in the process
- Help keep a chain moving if you end up in one
All of these points are useful and can help to keep you calm and organised during the selling, buying and moving process. Good luck!