Home Buyer & Home Seller Guide

Home owners with a mortgage should consider the financial implications of selling their home prematurely or at a lower price in order to secure a fast sale. A mortgage may extend over a 30 year period, depending on your financial institution, meaning that the first few years of mortgage repayments will make a very small dent on the capital amount borrowed.A premature sale may be impossible or actually leave your with little or no money in your hand thereby compromising your financial position.

Mortgage Repayments & Interest vs House Value

When you borrow from a bank or other financial institution in order to finance your home, your monthly repayments are calculated according to the amount that has to be covered, capital amount plus accumulated interest, within the repayment period, usually 30 years. Essentially the first 5 years of repayments only pays the equivalent of the interest amount and therefore you will find that after approximately 5 years of paying your home loan, you still owe the original amount borrowed. The years prior to this, you were simply paying off the equivalent of the interest accumulated throughout the repayment period. In some cases, your first 7 to 8 years of repayments would only cover the interest meaning it will take you even longer to reach a point where it is viable to sell your home at the approximate amount for which you purchased it initially.

House Price vs Mortgage Amount

When selling your home, especially if you are debt ridden and looking for a quick house  sale to put cash in your hand immediately, then the settlement value of your mortgage loan has to be taken into account. By settling your mortgage early, the amount to be paid is substantially lower than the total amount outstanding since the interest will be deducted from the remaining repayment period. However some financial institutions may add a penalty fee for settling your mortgage loan very early as they will be losing on the potential income that they would have derived from your mortgage repayments over the entire period. This has to be factored into your final selling price, irrespective of the valuation price or market related pricing. Your property may be valued at less than the outstanding settlement value which has occurred in recent times when property prices dropped. Furthermore the competitive property market at this time means that your valuation price may not be in line with the average selling price of similar properties.

Ownership of Mortgaged Property

Due to these considerations, your financial institution may not allow you to sell your home at the price that you feel is sufficient. Remember that your property is not yours and ownership rests with the financial institution that provided the mortgage until you completely pay off the loan amount. Therefore you may be unable to make decisions about selling your home at a price that you wish. Alternatively, you may be allowed to sell your home at a price that you choose but you will find that after settling the bank, you are left with very little cash in your hand, which may be insufficient to even fund your next move to another property. Essentially you lose on the years of repayments that you have made thus far, leaving you without cash or a home.

Before considering a house sale or even before you get a valuation price, it is important to first speak to the institution that has provided the mortgage to find out the exact costs and amounts due in settling your mortgage earlier. Even if you opt for a quick sale through professional buying agencies, you may find that the reduced purchase price will play against you in the long run and you will have little choice but to continue with your mortgage repayments and live within your home, even if you are in a tough financial position.