What Happens to Your Mortgage Loan When You Sell a House?

What Happens to Your Mortgage Loan When You Sell a HouseAre you looking to sell a house that you’re still in the process of paying off? You’re definitely not alone. These days, most homeowners sell their properties long before they’ve paid off the mortgage, and that’s a perfectly acceptable route to take. But selling a house that isn’t paid off can be a little confusing when you look at all of the financial aspects. What exactly happens to your mortgage loan when you close the deal? Read on to find out. 

How Home Mortgages Work

When you take out a mortgage loan, the lump sum of the loan gets divided up into equal payments over a predetermined period of years (most commonly 30). But that loan also accrues interest each month over the entire payback period. When you start paying off the mortgage, a higher proportion of each monthly payment will go toward interest than principal (the original price of your house). 

As you continue to pay over several years, that proportion will eventually shift, and a larger percentage of your payment will go toward the principal. Each dollar you pay toward the loan’s principal will decrease the total amount you still owe on your house.

What Happens to the Mortgage When You Sell the House

When you decide to sell a home that still has a mortgage, ideally you’ll sell it for more than what you currently owe on the loan. If that’s what ends up happening (it usually does), you can use the proceeds from the sale to pay off your existing mortgage and any other expenses related to the sale. You won’t owe any additional interest because you’re only responsible for paying interest while you’re actively making monthly payments on the loan. A common misconception is that all the interest must be paid at the time of the sale, but that’s not true. 

If you sell the house for less than what you still owe on the mortgage (you don’t make enough from the sale to pay off the loan), you’ll have to pay off the remainder of the loan with other funds. You can continue making monthly payments until you’ve paid off the principal, or if you have enough money lying around you can pay off the remainder of the mortgage in a lump sum.

How to Pay Off Your Mortgage When You Sell the House

Paying off a mortgage when you sell a home isn’t quite as simple or straightforward as it might sound. You can’t just write your lender a check and call it a day. To complete the process, follow these steps:

  • Request a payoff amount. Before you list your house, contact your lender to ask for a payoff amount. This figure is the amount of money you’ll need to give your lender to pay off your mortgage. 

  • Make sure the title is clear. Either you or your lender must find a title agent who can do a search on the title to make sure there are no issues with it. You’ll also need to give the agent your mortgage account number and payoff amount. 

  • Close the deal. You and your buyer will close the home sale, and you’ll sign off on all the required documents. 

  • Pay off the loan. After you’ve signed all the necessary paperwork, your title agent will send the final lump sum mortgage payment to your lender and finish the process by transferring the property title to the new owner. When everything is said and done, your home will be paid off!

Need to Sell Your Austin House? 

Are you looking to sell a home in the Austin area that still has a mortgage? Our team at We Buy Austin Houses can help! We buy houses in any condition throughout the Austin metro and surrounding areas, and we can buy your home even if you’re currently making mortgage payments. We’re always looking to purchase new properties, so don’t hesitate to get in touch with us if you’re looking to sell! Give us a call today at (512) 598-9341 or request a free no-obligation quote, and a member of our team will be in touch right away!