What Happens to Your Mortgage When You Move?
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How to Transfer Your Mortgage From One Home to the Other
Moving on its own is hard enough, but what happens to your mortgage that you haven’t paid off yet? Fortunately, there are ways to navigate selling your house and buying a new one when you haven’t yet paid off your mortgage. This article will go through your options should you decide to move before your mortgage is paid off.
What Happens When You Sell Your House and Buy Another?
If You Sell First
In today’s real estate market, selling your current house before buying another is usually advised. If the price you are selling your home for is less than the existing mortgage, you will need to pay the difference out of pocket. Setting your selling price above the mortgage gives you room to make a profit on the sale of your home and cover the remainder of the mortgage.
If You Buy First
Buying a house before your current house has been sold has its risks, but there are ways to come out of it successfully. In this case, contingency sales can be an option. This refers to submitting a conditional offer that states you cannot close until your first home sells.
However, keep in mind that in the current hot real estate market, contingency sales are very uncommon, and you likely cannot buy a home conditional on the sale of another home.
Also keep in mind that if this kind of conditional sale is an option, you will have to figure out how to fund the down payment, since your equity is still tied up in your existing home. In this instance, a bridge loan may be an option. A bridge loan is a temporary loan that helps you pay for your new home’s down payment while you wait for the equity in your old home to free up.
However, you cannot get a bridge loan unless your existing home is sold on paper. The bridge loan is only beneficial if the closing dates don’t match.
A Home Equity Line of Credit (HELOC) can also be a short-term solution to fund your down payment, but there are fees involved and you might not be able to get a HELOC if your house is already on the market. Work with a mortgage team to figure out if this is a good option
Can You Transfer a Mortgage to a Different Property?
Yes! This is also called porting your mortgage. Porting your mortgage allows you to transfer it to a different property. Essentially, you will be taking your existing mortgage—along with its current rate and terms—from your current home to your new home. Unlike mortgage refinancing, porting a mortgage doesn’t require you to break your mortgage and pay penalty fees. But you can only port your mortgage if you’re purchasing a new property at the same time as selling your old one.
What Happens to Equity When You Sell Your House?
Equity is your financial stake in the home. When you sell your home, assuming your home hasn’t dropped in value since you bought it and is worth more than you owe on it, you should make a profit at resale. The buyer’s amount can pay your mortgage lender and cover transaction costs. The remaining amount becomes your profit. That money can be used for anything, but many buyers use it as a down payment for their new home.
If You Have Significant Equity
Keeping up with paying down your mortgage over the years means you’ll have built up equity in your home. Having significant equity means you can cash in on profits when you sell and after you tie up loose ends (as mentioned above). You can then use those funds to finance the down payment on a new home or however you see fit.
If You Don’t Have Significant Equity
Having “negative equity” or “being underwater” also means you didn’t accumulate enough equity to pay off your loan. If you need to sell and have negative equity, you’ll need to pay the difference in cash at the closing table to cover the shortfall, or consider selling with a short sale. In a short sale, the bank must agree to let you sell the home for less than what you owe on it, since they’ll be getting less money than what they’re owed.
Determining How Much Equity You Have
Calculate the outstanding balance of your current mortgage then subtract it from the fair market value of your home. Consult with a real estate expert if necessary to find out how much it would make on the market. This is how you can find a basic idea as to how much equity you have.
What Happens If You Sell A House with A HELOC?
If your house has a HELOC attached to it, you will need to pay it off at the same time you pay off your mortgage. This is where your equity will come in handy. If your equity is substantial, you can handle all your payments seamlessly and make a profit. But if negative equity is persuading you to short-sell your house, HELOC lien holders may not allow it if they won’t receive any of the sale proceeds. As a homeowner with a first mortgage and a HELOCs, you will need work this out with all parties before short selling your home. It would be advisable to bring an expert advisor into the situation at this point.
In any case, a mortgage expert can help you navigate this situation – hopefully, with a profit and a seamless experience. Contact the Chris Allard mortgage team today to get started before you start packing your bags and hiring movers!
Chris Allard’s experience in the field means he can get you offers with over 50 financial institutions lending in Ottawa. Every lender has many mortgage products they offer, which means Chris and his team will make sure a mortgage caters to your needs while also ensuring you get a competitive rate. Chris Allard is a proud mortgage broker of Smart Debt Mortgages, independently owned and operated. Smart Debt broker #12236.