What happens if I sell a house early after buying? Mortgage wise.

warren_h_2

Hello,

Any help here is greatly appreciated, as I have a bit of a dilemma I need advice with

Basically I could be moving into a house shortly that is worth 150k. However, 50% of the house has been left to me in an inheritance.

I obviously need 75k to buy out the person who owns the other 50% of the house. 

I can get a mortgage from the bank for 75k, but with a 10k deposit (which I currently have in savings).
So I would be lending 65k. 
Natwest have told me the monthly payments would be around 320-333 per month over 25 years. That's with current IRs.
That is a potential total payback of around 99-100k on a 65k mortgage.

What would happen if I sold the house for 150K a year or so after buying out. And then used the money to pay off the 50% mortgage I took on the house (I borrowed 65k, 10k deposit).
How much are the bank likely to take to clear the mortgage? Would they want future interest, or potentially other costs (early payment charges) which would basically take a huge share of the 150K sale cost?

I don't know how these things work.  

I hope this makes sense...

Again, thanks in advance for help.
   

          

K_S

@warren_h_2 Quick comments -

- You don't need necessarily need any cash deposit, your equity in the property can be used as a deposit

- Once you own the property in your sole name, there's nothing mortgage related that will stop you from selling the property whenever you want.

- If you do sell the property and pay off the mortgage in full during a fixed period (eg: if you took a NatWest 2 year fix and then sold the property in the first year) then you would have to pay an ERC (early repayment charges) to NatWest. Typically, for a 2 year NatWest fix, that would be 1.5% of the o/s loan amount in year 1 and 0.75% in year 2. 

warren_h_2 said:

Hello,

Any help here is greatly appreciated, as I have a bit of a dilemma I need advice with

Basically I could be moving into a house shortly that is worth 150k. However, 50% of the house has been left to me in an inheritance.

I obviously need 75k to buy out the person who owns the other 50% of the house. 

I can get a mortgage from the bank for 75k, but with a 10k deposit (which I currently have in savings).
So I would be lending 65k. 
Natwest have told me the monthly payments would be around 320-333 per month over 25 years. That's with current IRs.
That is a potential total payback of around 99-100k on a 65k mortgage.

What would happen if I sold the house for 150K a year or so after buying out. And then used the money to pay off the 50% mortgage I took on the house (I borrowed 65k, 10k deposit).
How much are the bank likely to take to clear the mortgage? Would they want future interest, or potentially other costs (early payment charges) which would basically take a huge share of the 150K sale cost?

I don't know how these things work.  

I hope this makes sense...

Again, thanks in advance for help.

warren_h_2

Thanks for the above, I didn't know about my equity acting as a deposit.

I'm not sure how mortgages work when you sell up and pay off early.

My point was if I was lending 65k to buy. then sell for 150k after say 2 years, how much are the bank likely to take to clear the remaining mortgage?

would the bank ask for 23 years of payments with interest (around 91k)? Or a much small figure without interest? And of course there is the ERCs as you've mentioned, but they are not my main concern.

I worry I will lose out in a really big way if I sell the house after a couple of years. As opposed to cashing in on my 50% share (75k) straightaway by selling the house on the market. 

I have never owned  a property before and don't always work full time for health reasons. I'm mostly working part time at the moment, but it is reasonably decent pay.    

RobM99

What will the property market do - well, nobody knows! It only takes a pandemic or a war - oh, wait!

I own my house outright so if it goes up or down doesn't matter to me - it's still a house-worth.

billy2shots

It's very important to choose the correct mortgage if this is your plan. 

Some/many mortgage products will have early termination or settlement fees. A variable rate mortgage is probably your best option for a short turnaround but still check all the fees involved. 

K_S

@warren_h_2 To pay off the mortgage in full on x date the lender will need you to pay the outstanding loan (as of x date) + ERC (if any) + any redemption fee (usually £0 - £250 or so). That's it.

warren_h_2 said:

My point was if I was lending 65k to buy. then sell for 150k after say 2 years, how much are the bank likely to take to clear the remaining mortgage?

would the bank ask for 23 years of payments with interest (around 91k)? Or a much small figure without interest? And of course there is the ERCs as you've mentioned, but they are not my main concern.   

se2020

If you borrow £65k
And pay 325 a month for 2 years you will have pay back £7800
Some of this will be interest payments so you may have reduced the mortgage balance by £5000 or so?

So, when you sell you owe the bank £60k to settle the outstanding mortgage.
Plus an erc of (example) 0.75%
On £60k that would be £450
Plus a fixed fee (for the paperwork) of maybe £250
So total of £60,600.

When you take out the mortgage, you will agree to pay some sort of fee for an early repayment 
This is the ERC (early repayment charge) and is published by the banks on websites etc.
So, if you know you will be selling in 2 years you can look for a mortgage that offers a low repayment charge in year 2.

Most mortgages have ERC during any fixed periods of the loan.
So if you choose a 5year fixed interest rate it will cost you more to end it in year 4 than it will in year 6.

Also, if you are planning to buy another house when this one is sold you can often just move the mortgage from one house to another (called porting) which can save you the erc fees