What Happens to Your Home Loan If You Sell?
According to RENTCafé, the average rent for an urban apartment has increased by 3.8% over the past year. If you're looking to sell your home to take advantage of this trend, knowing what will happen to your mortgage is crucial.
This post will explain how selling your home affects your mortgage and provide tips for ensuring a smooth transition.
What is a Home Loan, and What Are the Different Types Available to Borrowers?
A home loan is a type of loan used to finance the purchase of a property.
There are different best home loans available to borrowers, including:
Fixed-rate loans: Have a fixed interest rate for the life of the loan
Adjustable-rate loans: The interest rate that can change over time
Balloon loans: Lower interest rate for the first few years, and then the interest rate increases after that
Reverse mortgages: Available to seniors who have equity in their home
Government-backed loans: Backed by the government and typically have lower interest rates
If you are struggling to afford your home loan payments, options are available to help you manage your finances. Speak to your lender or financial advisor about how they can help you find solutions that work for your situation.
What happens to your home loan when you sell your property?
Most people assume that their home loan is automatically paid off when they sell their property. However, this is not always the case. You need to take a few things into account when you are selling your property to ensure that your home loan is paid off:
Do you have a Fixed Rate or Variable Rate Home Loan
If you have a fixed-rate home loan, your repayments will remain the same for your loan term. If you sell your property before your loan term is up, you will still need to make the same repayments on your loan. However, if you have a variable rate home loan, your repayments may change when you sell your property.
This is because the interest rate on your loan will be based on the current market rates.
Whether You Have an Offset Account Attached to Your Home Loan
The money in your offset account is used to offset the interest on your home loan. If you have money in your offset account, you will pay less interest on your home loan. If you are selling your property, you need to consider all of these factors to ensure that your home loan is paid off.
Are There Any Penalties for Selling Your Home Before You've Paid Off Your Entire Loan Balance?
Yes, there are penalties for selling your home before paying off your loan balance in full. Depending on your lender and your loan contract, they range from a few hundred dollars to a couple of thousand dollars. Consult with your lender about the penalties.
Otherwise, you could owe a significant amount of money to the lender.
Can You Get a Pre-approval for a New Home Loan Before You Sell Your Old One, or Do You Have to Wait Until the Sale Goes Through?
You can get pre-approval for a new home loan before selling your old one. This means you can start looking for your new home before your old one is sold. However, you will need to provide your lender with an estimate of the sale price of your old home to get an accurate pre-approval.
If you are not sure of the sale price, you can speak to a real estate agent for an estimation.
Once you have a pre-approval, you will need to sell your old home and use the proceeds to pay off your home loan balance. You can then use any remaining funds for your new home loan deposit.
What Are Your Options If Something Happens and You Can't Afford to Keep Making Mortgage Payments?
If you can't keep making mortgage payments, you have options. You can try to renegotiate your loan with your lender, which may involve extending the term or changing to a different type of loan. You can also look into selling your property.
There are a few things to consider when selling your property and home loan. Have you considered all of the factors to ensure your home loan is paid off?
If you are unsure about anything, speak to your lender or financial advisor. And there are penalties for selling your home before paying off your loan balance.
It's always good to have an emergency fund and start saving for a home loan deposit. But if you are considering getting a home loan, it is important to do your research first. And while you can still get approved for a home loan with bad credit or no credit history, it will be more difficult and take longer.
