Do you own a house and would want to sell it but it happens to be under mortgage? Most houses in Australia, almost two-thirds of the population, own a home through a mortgage. After paying for your mortgage owned home for quite some time, you have finally decided to sell your property? Is this possible and how do you do it?

You can sell a property under mortgage, but you may have to sell your home greater, or less than the value of your mortgage.

Selling a Home Less Than the Value of Your Mortgage

Selling your home at a value below your outstanding mortgage, your situations will fall under the circumstance called Negative Equity. This is considered very risky when house prices are dropping.

If you purchased your home at the top of the cycle and then you are required to sell it at a value less than that, you will be paying repayments at the same rate.

To be able to avoid this, you need to make a property research to ensure that you have a lower loan-to-value ratio of 90% to reduce the chances of not being able to repay your home loan and being left with no choice but the sell your property at a value less than your mortgage.

Selling a Home More Than the Value of Your Mortgage  

You can sell your home at an amount more than you have borrowed. When selling, you expect a return on your investment. This is possible even if you are not yet done with paying for your mortgage. Also, remember that you need to repay your lender before you can negotiate for a new loan term. To make this process as smooth as possible, here are tips you can follow.

  • Notify your lenders that you are planning to repay your loan. You will need to submit a discharge form to your lender via a solicitor or conveyancer a month before the settlement day of your contract.
  • Discharge requests usually take at least 2 weeks to process and can take as long as a month. It is better to submit your request ahead so you can meet deadlines and target turnovers.
  • If you are planning to take out a new home loan from the same lender, it would be ideal to submit your mortgage application at the same time as your discharge request.

The process is really very straightforward. However, you should be wary of the time frames to be able to process all your request and applications within a required period before the day of settlement rolls around.

Will it Cost You to Sell Your House with a Mortgage?

There are fees included when you are selling a home that is still under a mortgage. Such fees to consider are the following:

  • Discharge request fee – can go anywhere between $250 and $500 to process your discharge request
  • Break fees – For fixed rate home loans, you will be required to pay for a break fee to be able to pay your loan for full earlier than your original loan term. The amount depends on the computation of the bank.
  • Conveyancing fees – This amount is the cost of selling the property. This is to cover for the service of doing the paperwork for you as the exchange takes places.

Selling a Home With No Mortgage

After paying your mortgage completely with the decision of selling it afterwards, it simply means that you get the entire value of your property as payment on your settlement day. If you are downsizing, you’ll be able to purchase a new property in cash and then have some extra equity that can be used or saved. Some people use this strategy to beef up their retirement funds.

However, you can’t expect any incentive from paying your mortgage early. Banks are earning from you through the interest rates that you pay on the loan. Paying them early means losing access to those interests. Thus, there is a big chunk of expense included in selling your property. Such include agent fees, but can be offset from the cost of breaking your mortgage.