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.

Private House Sale or Use an Estate Agent

As with any house sale, there are usually costs involved. If you have opted to put your house on the market, you will need to factor is different costs which will eventually impact on the final amount of cash in your hand. A real estate agent may make the entire process of selling your home much easier but the commission may have a fairly significant impact on the price you finally receive. A private sale can also be costly, with attorney fees, and administrative costs taking a small chunk out of your profits. Even if a private house sale may seem like the better option than dealing with an estate agent, it is important to bear in mind that you may still need to undertake advertising and other methods to market your home.

Quick Sales to Agencies

If you need access to quick cash by selling your house, then you may have to consider selling to a professional buyer like an agency. While this may only get you 75% or less of your house value, you can assured of a quicker sale. With an agency sale, you will also not have to bear any costs for the sale as legal expenses and administrative costs are covered by the agency, and not by you as the seller. If you are considering selling your house to an agency, it is important to consider the following.

• Approach more than one agency and compare the offers on your house. Ask each agency about their procedures, length of time to conclude the sale and any expenses that you may be landed with.
• Ask the agency if they provide a ‘sell and rent back’ option so that you can live in your house after the sale until you find some alternative accommodation that may be more affordable.
• Analyze house prices in your area and hire an independent assessor to give you a valuation. If you are losing more than 30% on selling your house to an agency, then you may have to reconsider your options or try to negotiate with the agency.
• Calculate the cost of doing minor renovations and repairs that may increase the value of your house. While an agency may not change their offer significantly, the investment in doing up your house may yield you more from a private sale.
• Budget yourself for additional living costs and renting another property and calculate if you can afford the move. While the quick cash in your hand from a fast house sale to an agency may seem like a better solution to settle higher interest rate credit, it may not be sufficient to improve yoru financial situation should your new living costs affect your budget.
• Consider options like extending your mortgage slightly to settle debs with a higher interest rate. While this may not be the best approach to your financial worries, it may allow you to retain your house while reducing your overall debt.
• Speak to your bank about the settlement costs in paying off your mortgage. While you may be able to get 75% of your house value through an agency, you may not save significantly by selling your house if you have a substantial amount still owing on your mortgage.