If you’ve been thinking of selling your home and the mortgage is as yet unpaid, don’t be concerned. Considering that most mortgage terms range from 15 to 30 years, it is not unusual for homeowners to choose to sell the house early. Statistics released by Zillow Group Consumer Housing Trends Report 2018 s show that most people live in their homes for around 13 years before opting to move. Several factors can influence your decision like, for instance, moving to a bigger place to accommodate your growing family or cashing in on rising estate prices. Whatever may be the reasons for selling your home, one of the first steps to take is figure out how the mortgage works. You’ll also want to find out how to manage the payments that remain unpaid.
Contact the Mortgage Provider for the Payoff Amount
Once you make the decision to sell the house, get in touch with the mortgage provider. Ask the lender about the total payoff amount you still owe on the house. It goes without saying that the longer you’ve been making monthly payments, lower will be the amount owed. Further, if the value of the house has appreciated over the years, you might be able to cover the mortgage amount and have a good-sized sum left over to use as needed. Like the experts on MoneyGeek advise, as you continue to pay installments, the percentage of interest in each payment gradually gets lower. And, the percentage of the principal amount you cover with each payment becomes higher.
Here’s an example. Assuming you bought a home for $250,000 and paid of 20% down payment or $50,000, you’ll have taken a mortgage of $200,000. Let’s also assume that the amortization period is 30 years and the rate of interest is 5%. When you first begin making payments of $1,074 each month, $833 will cover the interest while $240 will be deducted from the principal. After the next couple of years, you may find that only $804 of each payment is interest and the balance $264 is calculated as principal repayment.
Estimate the Selling Price of the House
On informing the lender of your intention of selling your home, the loan provider will deduct the total paid off principal from the loan amount and inform you about the final sum owed. Use this figure as a starting point to evaluate the price
for which you want to sell the property. Also, keep in mind that you’ll pay interest only as long as the mortgage stands. As soon as you finalize the sale, interest payments stop right away. At the time of calculating the amount you still owe, add in the closing costs to the sum. These expenses can include attorney fees, taxes owed, 5% to 6% of the commission payable to the estate agents, and any other transfer fees.
Remember that Prepayment Penalties and Other Costs Can Apply
Check the documents you signed at the time of taking the mortgage and understand the terms and conditions. Look for the fees and penalties you’ll pay in the case of prepayment of the loan. Most mortgage agreements levy a charge for paying off the loan amount before time. Others may have a clause that penalty is applicable only if you’re selling your house within a term of say, 5 years or less from the time you buy the property. Individual lenders have their own conditions for prepayment. These can include penalty in the form of a percentage of the balance mortgage amount. Or, a fixed charge added to the other fees and charges. Often times, homeowners make small improvements and renovations to raise the price of the house. If you intend to undertake such projects, make sure to factor in their costs also.
What if the House Has Appreciated or Depreciated in Value
To go with the earlier example, say, the remaining mortgage loan owed at the time of selling your home is $100,000. And, the value of the house has appreciated to $300,000. After deducting the amount payable after sale, you’ll receive a check for the balance just as this post on BudgetingThe Nest explains. However, if the market price of the house has gone down, you’ll have two options to manage the balance mortgage payment.
1. You Must Cover the Unpaid Balance
Once the realtor has confirmed that the title is clear and cites you as the owner, the sale is finalized. The deed gets transferred into the name of the purchaser. If you still owe money to the mortgage provider after you get proceeds from the sale of the house, you must arrange for the balance just as these responses on NerdWallet reveal. At times, the transfer can take from 30 to 45 days. In that case, it is prudent to continue making monthly payments all through the escrow period until the deal is final. In case you fall behind payments before the title transfer is complete, you risk incurring late payment fee. This fee could reflect on your credit score which is something you don’t want. Rest assured that you’ll get a refund if there is any overlapping of instalments during the process of selling your home.
2. Contact the Bank or Mortgage Provider for a Short Sale
In case you’re selling your home to raise finances quickly, contact the loan provider and ask about the possibility of a short sale. Like the experts at Wrightwood Homes advise, the lender may agree to a reduced payoff amount. You’ll also receive assistance for closing the sale at the best price possible. Typically, banks welcome this option to prevent the possibility of a foreclosure which involves high expenses and is time-consuming. Opting for a short sale works to your advantage and helps avoid the negative impact on your credit score.
Managing the mortgage when selling your home may seem like a complicated process. It is best that you consult an expert for professional advice that helps you go through the sale smoothly.