What do you do with your mortgage if you sell your own home?

Are you planning to sell your house? Then all sorts of questions come around the corner. What will be the asking price? Is the house actually ready for a viewing yet? If you have taken out a mortgage for the current home, you should also decide what to do with it. There are several possibilities. Which ones they are, lays Erik Slijkoord, mortgage advisor at eyeOpen.nl, please explain.

Mortgage repayment

When you sell a home, you should immediately pay off your mortgage in full. Generally, most mortgage lenders impose a penalty for additional repayments mid-term. When you sell a house, there is often no question of this and with most parties you pay no penalty. Still, there are some parties that do charge penalty interest. Always ask your lender about this. Whether the sale raises enough money to pay off the mortgage debt in full depends on the sale price of the home.

Residual debt
Residual debt occurs when the sale of the home does not generate enough to pay off the outstanding mortgage debt. The amount you have not yet been able to repay is the residual debt, on which you pay interest. That interest is deductible if this debt was incurred after Oct. 28, 2012. It is important to contact the mortgage lender in such a situation so you can make a plan together for paying off the debt. If you do not do this, you run the risk that the sale of the house during the transfer will still be blocked.

You can pay off a residual debt with your own funds. Do you want to take out a new mortgage? There are also possibilities to include the residual debt in the financing. You borrow an amount for the new house and in addition you agree on how your residual debt will be repaid. The options in this depend very much on your situation. Enlist the help of an advisor to discuss all options.

Residual debt on a mortgage with National Mortgage Guarantee
Do you have a mortgage with National Mortgage Guarantee (NHG)? Then the residual debt could be forgiven. There are strict rules attached to this. For example, you must have done everything possible to minimize the residual debt. Suppose you concealed a student debt when you applied for the mortgage. Then you no longer have a claim to NHG.

Surplus value
There is excess value if the house is worth more than the mortgage you took out for it. You may have to deal with this when selling your home. Do you want to remain entitled to mortgage interest relief? Then you are obliged by the additional loan scheme to use the surplus value to buy a new home. This rule applies for three years from the date of sale. Do not use the money for a new house, because after selling your home, for example, you will first rent a house? If you then wait three years before buying a new home, you may simply deduct all the mortgage interest from tax again. You may then do what you want with the money from the surplus value.

Taking mortgage

Sell your house to buy a new home afterwards? You can choose to take the existing mortgage with you. This means that you take the mortgage interest rate and conditions with you to your new mortgage for the rest of the fixed-interest period. This is usually possible if you go from a mortgage with NHG to a new mortgage that also has NHG. Is your situation different? If so, check exactly what rules your lender follows.

Taking the mortgage interest and conditions along is advantageous if, for example, you have a favorable mortgage interest rate. Note that this is only possible if you stay with the same lender. Your mortgage application will also be completely reviewed as if it were a new mortgage.

Higher purchase price of new home
If you choose to take the mortgage with you, but the purchase price of the new home is higher than the current mortgage? If so, you will need to take out a new mortgage, and you can probably take the interest rate and terms for the amount of the current mortgage with you with the same lender. For the remaining amount of that new mortgage the mortgage interest rate of that moment applies. Do take into account the closing costs involved.

Situation with an interest-only mortgage (taken out before 2013)
Did you take out a repayment-free mortgage before 2013? Then you are still fully entitled to mortgage interest relief. Do you want to take out this mortgage? This can be done for up to 50% of the market value and on this you retain the right to mortgage interest deduction. For the remaining portion, take out a new mortgage.

Taking out a new mortgage

Are current mortgage rates and terms more favorable than your current loan?? Then you need a new mortgage if you plan to buy a new home.

Bridging loan: if your home is not yet sold

Is your current home not yet sold, but you want to use its surplus value for a new mortgage?? Then you can take out a bridge loan. This is a temporary loan for the amount that will be released once you sell your house. You do pay interest. This interest is only deductible for an owner-occupied house, i.e. where you actually live at that time.

Want to know what is the best choice in your situation? Then enlist the help of a mortgage broker.

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