Buying a house is no longer for life. If before the signing of a mortgage was a unique moment for many families who saw the dream of buying their first home come true, now the panorama regarding housing is quite different.
Either because the real estate market has been reactivating in recent years after the bubble or because the economy has shown signs of improvement and has caused some labor mobility in Spain and greater optimism on the part of many owners, the need to change housing has made a comeback.
Some expand the family and need to move house, while others are forced to move to a new city for work or family issues. Be that as it may, it is necessary to sell the house to buy a new one in many situations. But what if we still have a mortgage to pay? At Finest, we bring you three solutions to sell a flat with a mortgage and buy a new one.
Pay off the mortgage when selling a house.
There are different options when the need arises to sell the house to buy a new one. However, if that house has a signed mortgage that we have not yet finished paying, the situation can be more complicated, even so, you can sell a flat with a mortgage burden, and it is a much easier process than many think. Therefore, we will explain how to sell a house with a mortgage.
One of the most recurring options is to cancel the mortgage loan. In this way, we leave the property free of charge and can be sold to a new owner. Although there are currently several options to sell our mortgaged home and buy a new one, it is still not allowed to get rid of the house and continue paying the mortgage loan. Therefore, it will be crucial to cancel the mortgage to sell the property and buy a new one.
However, depending on how the sale operation is, the cancellation of the mortgage will have to be done in two different ways:
Cancel the mortgage when selling the house for a higher price
It is, without a doubt, the best option. If we manage to sell our home for a price higher than the amount we have left to pay in the bank, the mortgage cancellation will be a more straightforward procedure. In this case, we will have to go to the bank and request the certificate of the outstanding debt balance. Once the purchase agreement is signed and said document has been reviewed, we must return to the bank and settle the mortgage amount with the money from the purchase transaction.
In addition, it must be taken into account that if it is a mortgage loan that has a cancellation fee, these additional costs will have to be faced. In general, if the cancellation occurs during the first five years of the mortgage term, the penalty may not exceed 0.5% of the outstanding capital. If it is made later, the commission will be a maximum of 0.25%. Likewise, if we have signed a fixed mortgage, the entity could also charge compensation for interest rate risk, between 0.5% and 5%. Along with all this, we will have to face the payment of personal income tax for what is known as a capital gain.
Of course, the only thing that we will not have to pay in these cases is the Registry, since the cancellation will also have to be made effective in the Property Registry. However, this part will have to be faced by the buyer.
Cancel the mortgage when selling the house for a lower price
In many cases, this may be one of the scenarios that we find ourselves. And it is that, above all, due to the real estate bubble, many flats were bought at high prices and that now cannot be sold for that same value or an approximate one. Therefore, if the mortgage debt is very high, it may be sold at a lower price than the mortgage.
In this case, we will also have to request the pending debit certificate from the bank and pay all the money from the sale. The amount that remains to be paid will no longer be a mortgage in itself but will become a new mortgage loan, with different conditions. At this point, we will also be required to pay the mortgage cancellation fee (if any) and the cost of setting up the new personal loan (if any).
Therefore, if this is the only option available to us, we will first have to make calculations and assess whether it is worth selling the house or waiting for it to appreciate in the future.
Subrogate the mortgage to the buyer
Although mortgage subrogation is commonly known as the way for mortgage holders to transfer their loan to another bank to improve its conditions, it is also possible to use subrogation to sell our house and buy a new one, that is, it can sell a home without paying off the mortgage.
Through the subrogation of the mortgage loan, it is possible to sell the house and transfer the debt to the buyer of the property. To do this, both the seller and the buyer must go to the entity in which the loan is signed and request the subrogation of the mortgage. This will involve a risk study on the buyer to avoid defaults, similar to the one that is done to any person who applies for a mortgage loan. In this way, if the entity approves it, the change in ownership of the mortgage can be carried out, which will become the buyer’s responsibility. Of course, in these cases, the seller will have to face the payment of the risk study of the new owner the processing and subrogation of the mortgage. The latter may not exceed 0.5% of the outstanding capital if made during the first five years of the loan. If the operation is carried out later, the cost may not be greater than 0.25%.
Despite these expenses, this is one of the simplest and cheapest ways to get rid of the mortgaged home since we will not have to bear the costs of canceling the loan.
Apply for a bridge mortgage
If we need to move urgently and this implies the purchase of a new home, it is possible that the most appropriate option is to apply for a bridge mortgage. This product is recommended for those people who cannot get rid of their house in a short period and can face a higher mortgage payment.
And it is that the bridge mortgage allows the owner to unify two mortgages into one. In other words, instead of paying two loans separately, we can unify them into one, making the total calculation of the installments less than what we would face if we paid two mortgages separately. In this way, once the house is sold, we can cancel the debt and assume only the installments of a new traditional mortgage that we will have to formalize for the new home.
It is an alternative for those who have to move urgently. However, we must bear in mind that to obtain this mortgage, we will have to commit to the bank to sell our property within a certain period. In addition, the bridge mortgage supposes practically double the mortgage payment when we keep the two houses, so it will be necessary to make calculations to assess whether or not it is the best option.