What happens to mortgage when you sell?

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When you decide to sell your home, one of the key considerations is what happens to your mortgage. Selling a property with an outstanding mortgage can be a complex process, but understanding the implications can help you navigate the transaction smoothly. In this article, we will explore what happens to a mortgage when you sell a property and how it affects both the seller and the buyer.

Paying off the Mortgage

Principal Balance: When you sell your home, the first step is to determine the outstanding balance on your mortgage. This is the amount that needs to be paid off to the lender. The principal balance includes the original loan amount plus any accrued interest.

Proceeds from the Sale: The proceeds from the sale of your property are used to pay off the mortgage. After deducting any selling costs, such as real estate agent commissions and closing fees, the remaining amount is applied towards the principal balance.

Release of Lien: Once the mortgage is paid off, the lender will release the lien on the property. This means that the mortgage is no longer attached to the property, and the buyer will receive a clear title.

Transfer of Mortgage

Assumable Mortgage: In some cases, the buyer may choose to assume the existing mortgage instead of obtaining a new loan. This can be advantageous if the terms of the mortgage are favorable, such as a low interest rate. However, assuming a mortgage requires the lender’s approval and may involve additional fees.

Refinancing: Alternatively, the buyer may decide to refinance the mortgage to secure a new loan with their own terms. This involves paying off the existing mortgage and obtaining a new one. Refinancing allows the buyer to customize the loan to their specific needs and financial situation.

Impact on the Seller

Prepayment Penalties: Some mortgages come with prepayment penalties, which are fees charged by the lender if the mortgage is paid off before a certain period. It is important for sellers to review their mortgage terms to understand if any prepayment penalties apply. These penalties can impact the amount of money the seller receives from the sale.

Remaining Equity: After paying off the mortgage and deducting selling costs, the seller will receive the remaining equity from the sale. This is the difference between the sale price and the outstanding mortgage balance. The equity can be used towards purchasing a new home or for other financial purposes.

Impact on the Buyer

Financing Options: If the buyer assumes the existing mortgage, they may benefit from the terms and interest rate of the original loan. However, if they choose to refinance, they have the opportunity to secure a loan that aligns with their financial goals and current market conditions.

Qualifying for a Mortgage: The buyer’s ability to assume the existing mortgage or obtain a new loan depends on their creditworthiness and financial situation. Lenders will assess their income, credit score, and debt-to-income ratio to determine their eligibility for a mortgage.


When you sell a property with an outstanding mortgage, the mortgage needs to be paid off using the proceeds from the sale. The seller will receive the remaining equity after deducting selling costs, while the buyer has the option to assume the existing mortgage or refinance. Understanding the implications of a mortgage when selling a property is crucial for both parties involved in the transaction.


– Bankrate.com
– Investopedia.com
– Realtor.com