How to Sell a House with a Mortgage in Mississauga
A mortgage is a financial loan one acquires to buy a house. There are various types of mortgages depending upon the terms and interest rates for the facilitation to own a house. Whatever the terms, once the loan is paid-off, the house is fully owned fair and square.
This article would elaborate all those important aspects for selling the house on a mortgage in Mississauga. Which option would be best for you? How much complexity is involved? Our focus of covering this topic is to help you get well informed of all situations before going for a final decision.
To better address the concerns of you all, lets deep dive in the type of mortgages in Canada. This would help you to understand in which category you are currently or expected to be. And which factors to consider for making a smoother sale process as per the type of Mortgage.
Types of Mortgages
1. Conventional Mortgage: Open & Closed Types
The conventional type mortgages are simple as they do not exceed 80% of the purchase price or appraised value of the houses, whichever is less. This type of mortgage does not have to be insured against default.
Open types offer flexibility to pay-off large sums or even all of the mortgage without penalties before due time. This type has usually high interest rate than closed types. It is best recommended to avail if there is a good probability to pay off in less time so to avoid penalties.
Closed mortgages are referred to as security of fixed payments against fixed repayment tenure. These types have high penalties if one pay off before maturity but interest rate is usually low.
Selling Scenario by Paying Off the Conventional Mortgage
If you want to sale your house with the conventional mortgage either open or close, you need to first discuss it with your lender. This is the first and foremost step to determine your outstanding mortgage balance, including any prepayment penalties that may apply on closed types specifically.
Its better to involve an expert real estate agent to determine the fair value of your house. Experts help you in listing your house and prepare it for the best presentation to attract buyers, however you can do all these steps by yourself as well.
Once you are at the phase where you have received desired offer, keep your lender in loop related to the impending sale. At this phase you will receive clear directions on how to proceed with the mortgage payoff. It would include all prepayment penalties as well if you have a closed mortgage.
Smooth closing is to pay-off lender from the proceeds of the sale. You’ll need a lawyer and notary to complete all legal documentation for ensuring that mortgage is paid in full and the house title is transferred to the new owner.
Considering the simplicity, usually paying off existing mortgage is mostly considered by the sellers.
2. Portable Mortgage
As the name refers, this type of mortgage is transferrable to a new home without paying any penalty. It is mostly considered when one has preplanned shifting to other areas in the vicinity or just to be on the safer side.
You should consider options of portable mortgage and discuss with your lending partner related to such options as it would be very easy to shift home, if needed. Relying on good Realtor would be the key here who would help you find related options that can be covered as per your existing portable mortgage plan.
Selling scenario of portable mortgage house is relatively easy as you are porting your mortgage. So no need to pay off existing mortgage and arrange new for the next house.
3. High-Ratio Mortgage aka Insured Mortgage
High-Ratio mortgages are the ones having down payments less than 20% of the house’s value, and they are called insured mortgages as they require mortgage loan insurance from providers like CMHC (Canada Mortgage and Housing Corporation). The cost of the insurance is paid for by the borrower and is generally added to the mortgage amount.
Selling Scenario of High-Ratio mortgage house is similar to conventional mortgage discussed above but the pay-off mortgage amount includes the Insurance Premiums as well that need to be settled.
4. Reverse Mortgage aka Home Equity Conversion Mortgage
This type of mortgage is in fact a financial product enabling homeowners aged 55 and older to convert a portion of their home’s equity into tax-free cash without the need to sell or move out of their home. It’s a good option for you if you have a significant home equity but less financial monthly income thus to overcome living expenses, traveling costs, medical expenditures, or to pay-off other mortgages, etc. Unique feature of reverse mortgage is that there is no monthly/quarterly repayment cycle.
Selling Scenarios of reverse mortgage homes are:
a. To repay the loan received over period of time
As there are no monthly repayment schedules. The total loan repayment is done when you leave the house or you or your heirs wish to sell for the repayment of loan. Interestingly, reverse mortgage is designed with a “no negative equity guarantee,” which means the amount owed can never exceed the fair market value of the home at the time of repayment. To put in more simple words, the loan amount can never exceeds the actual worth of the home.
b. Settling mortgage separately
Although reverse mortgage finance utility is designed for long-term use, but if you want to settle it, can be done without any prepaid penalties. After that house would be treated as without mortgage.
Overcoming Selling Complications of Mortgage homes
Above types and cases explained are usual and typical situations for selling houses on mortgages. Though lets discuss some cases where conditions get complex and how to overcome them.
1. Buying new and closing dates of existing mortgage house are not matching
We have discussed a scenario where you are selling a house (impending sale) and you pay-off the existing mortgage from proceeds of the sale. There may be a situation where these dates don’t match due to any reason. Sales proceeds is in delay and you have to move to a new place
Bridge loans help you cover the down payment on the new property until you receive the proceeds from the sale of your current home.
It can be availed by a small set-up fee charged by the lender in addition to cost of the interest as you’ll be carrying both properties for a short time. The rate charged on the bridge loan is about 2-3% above the bank’s prime.
How to avoid it?
To overcome this problem, there is a type of short-term mortgage facility called Bridge Financing.
2. Selling a house with mortgage but without clearing or porting
A scenario where you want to sale the house without clearing the mortgage and no intention of porting it as well through portable mortgage option discussed above. It is a tough spot as this scenario is complex.
Assumable Mortgage is a type of mortgage where buyer agrees to take over the existing mortgage from the seller rather than obtaining a new loan.
Even if the mortgage is assumable, you need to get your lender’s approval to transfer the mortgage to the newer buyer.
How to avoid it?
It typically involves the process of “selling subject to the existing mortgage” or “selling with an assumable mortgage.”
Please ensure first that your mortgage is assumable or not from your lending partner. As all mortgages are not assumable. It is written under terms and conditions.
Challenges and complications of Assumable Mortgage
Following are crucial considerations because of complications of this type of Sales scenario.
a. Not all mortgages are assumable, and lenders may charge extra fees for allowing mortgage assumptions. Make sure to clarify all costs involved with your lender.
b. If the buyer defaults on the assumed mortgage, you might still be held partially responsible, depending on the terms agreed upon with the lender and the buyer.
c. Selling a mortgaged property without clearing the mortgage can limit your pool of potential buyers, as not everyone may be eligible or willing to assume the existing mortgage.
Proper Drafting of Agreements: It’s essential to seek legal advice from a real estate attorney or notary to ensure all necessary contracts and agreements are properly drafted.
Clearly Discuss the Terms of Mortgage transfer: In a transparent manner discuss the terms of the mortgage transfer with the buyer and lender, including any additional terms or conditions related to the existing mortgage.
Only Rely on Professionals: It’s crucial to work with professionals, including a real estate agent, real estate attorney, or notary, to navigate the legal and financial complexities of selling with an assumable mortgage.
As the process can be complicated, you should consult with professionals and your mortgage lender to understand all the implications before proceeding with this type of sale.
The last solution point mentioned above is actually applicable to all selling scenarios. It’s essential to work with experienced professionals throughout the sale process, such as real estate agents, mortgage brokers, and legal experts. They can guide you through the intricacies of selling a house with an outstanding mortgage, ensuring a smoother and faster transaction.
Always check with your mortgage lender for specific details related to your mortgage type, as policies and conditions can vary between lenders and mortgage products.