Selling a House with a Mortgage: What You Need to Know?

If you're thinking about selling a house in Formentera but you still have an outstanding mortgage, it's normal to have doubts about how to proceed. Many property owners face this situation, and although it may seem complicated, there are various options to sell your mortgaged property without major issues. In this article, we explain everything you need to know about selling a property with a mortgage and the steps you should follow to carry out a successful sale.

Can you sell a mortgaged house?

Selling an apartment with a mortgage is completely possible, although the process requires some additional steps. A mortgage usually lasts many years, and during that time, personal circumstances may change, leading us to the need to sell our home. Reasons like a job change, moving for personal or family reasons, or even a separation, are common reasons why many owners decide to sell their apartment, even with an outstanding mortgage.

Canceling the mortgage at the time of sale

In the best case, if the sale price of the house is higher than the outstanding mortgage debt, you can cancel the debt at the time of sale. To do this, follow these steps:

1. Confirm with the buyer that the sale price is sufficient to cover the mortgage balance.
2. Request a Pending Debt Certificate from your bank, an essential document for the cancellation process.
3. Sign the sale before a notary, presenting the Pending Debt Certificate.
4. With the payment received from the sale, settle the outstanding debt with the bank.
5. Once the debt is paid, you will receive the remaining money owed to you, and the bank will proceed to cancel the mortgage registration.

Selling the property below the mortgage

In some cases, the value of the property may not be enough to cover the mortgage debt. In this scenario, you can still sell the property, but there are some important considerations:

1. You should consult with the bank to renegotiate the terms of the remaining debt, as it will become a new personal loan.
2. The buyer will provide the cheque for the sale price, but this amount will go directly to the bank to settle the mortgage.
3. The outstanding debt that cannot be covered by the sale will convert into a new loan, so it’s essential to agree on the terms with the bank.

Mortgage subrogation: Transferring the debt to someone else

Another option is mortgage subrogation, where the buyer assumes the outstanding debt. For this to be possible:

1. The buyer must be willing to assume the debt and agree to the mortgage terms with the bank.
2. The bank will review the buyer’s profile to ensure they can take on the mortgage payments.
3. If the bank accepts, the mortgage contract will be modified, with the buyer becoming the new holder.

Bridge loan: A loan to change homes

If your goal is to sell your current home and buy a new one, but you can’t wait to sell before purchasing the new property, you can opt for a bridge loan. This option allows you to pay both mortgages in a unified manner. The steps to follow are:

1. Request a bridge loan from the bank, explaining that you will use it to cover both mortgages until you sell your old property.
2. The bank will evaluate the case and, if accepted, will offer you a bridge loan with a set term.
3. During this time, you will pay a higher monthly fee, but it will be lower than if you were paying both mortgages separately.
4. Once the first property is sold, the bridge loan is settled, and you will only need to pay the mortgage on the new house.

Costs of selling a property with a mortgage

When selling a mortgaged apartment, you will have to assume some additional costs, including:

• Real estate agent fees: If you hire an agency to manage the sale, you will need to pay a commission on the sale price.
• Mortgage cancellation fees: These include early cancellation fees, which vary depending on the bank and the mortgage contract.
• Taxes: You will need to pay the municipal capital gains tax, which taxes the increase in land value, and the income tax on the capital gain obtained from the sale.

Is it advisable to sell the house if you can't meet the mortgage?

If you can’t pay the mortgage, selling the property may be a viable option. However, before making this decision, it's advisable to try to negotiate with the bank for a solution, such as a moratorium or an extension of the term. If that is not possible, selling the apartment will allow you to avoid default and the associated legal consequences.

Frequently Asked Questions

Can I sell my apartment if I have an outstanding mortgage?

Yes, it is entirely possible to sell a mortgaged apartment. Depending on the sale price and the outstanding debt, you can either fully cancel the mortgage or renegotiate the remaining part.

What documents do I need to sell an apartment with a mortgage?

You will need the Pending Debt Certificate from the bank, which you can get by requesting information about the mortgage balance. You will also need to carry out the mortgage cancellation after the sale.

What is mortgage subrogation?

It’s a process where the buyer takes on the seller’s outstanding mortgage, assuming the debt and the terms of the mortgage loan.

How much should I pay in taxes when selling a mortgaged apartment?

You will need to pay the municipal capital gains tax and the income tax on the capital gain obtained. The exact amount will depend on the sale price and the length of time you’ve owned the property.

If you need help selling your mortgaged apartment in Formentera, feel free to contact us. We offer personalized advice to make the sale as easy as possible and help you get the best price for your property.