Selling your home What to bear in mind when selling a mortgaged property

Selling a house with a mortgage takes patience and skill. We set out the options for your current mortgage, and explain what you should bear in mind when planning for the sale.

Whether they have just retired, are switching jobs or getting divorced, people often want to sell their house even though it is still mortgaged. There are several options for selling a property in this situation. 

If you want to sell a property that is still mortgaged, the first thing to do is to check the contractual terms of the mortgage. How much will the early repayment penalty be if you want to cancel and repay the mortgage when selling the property? What fees will be due if you want to transfer the mortgage to a new property and make changes to the mortgage contract?

If you want to sell your mortgage with the property, you or the estate agent should make sure that the potential buyers do not already have a mortgage from their old property.

Timing is crucial if you are buying a new property and want to transfer your mortgage. This is because the sale and purchase must follow on from each other as quickly as possible. Otherwise, there will be a period in-between when the bank will not have a property as collateral for the loan. In addition, your mortgage lender will have to check your creditworthiness again. You won’t be able to transfer the mortgage if your financial circumstances have deteriorated significantly since your previous purchase. In principle, the bank is not obliged to transfer the mortgage to a new property. However, mortgage lenders usually accommodate their customers.

Involve your bank in the process at an early stage

There are several essential points to consider if you want to change the conditions of your mortgage, especially if you intend to sell the mortgage with the property or transfer it to a new property. You should involve your bank right from the start and arrange an appointment with your bank or mortgage advisor. Dialog is the be-all and end-all. Your advisor will be able to talk you through your options in detail and calculate costs such as the early repayment penalty if you intend to buy back the mortgage – i.e. cancel it before the term.

The buyer often agrees to take over the mortgage with the property. Transparent negotiations and a willingness to compromise are vital. Ultimately, the more interested the buyer is in the property, the more willing they will be to compromise.

This is advantageous or disadvantageous depending on the interest rate situation.

If you took out your mortgage at a low interest rate, and there are still several years before the term, it is quite possible that the buyer will be interested in benefiting from the favorable conditions and in taking over the mortgage. If you took out the mortgage at a time when interest rates were high, this is more of a disadvantage for the buyer, as they could take out a more favorable mortgage at today’s conditions.

In the latter case, you can accommodate the buyer by reducing the purchase price of the property by the additional amount that the buyer will have to pay for your mortgage compared to the current cost of a mortgage. For example, if the buyer would save 50,000 francs by taking out a new mortgage, you could offer to deduct this amount from the sales price. Another advantage for the buyer is that they can deduct more debt interest from their taxable income than with a more favorable mortgage.

In this case, you should ask your mortgage advisor to help you calculate whether the early repayment penalty would be higher than the price reduction of 50,000 francs on your home. If so, it is worth selling the house with the mortgage. If not, it would be better to pay off the mortgage and accept the early repayment penalty, as you can deduct it from your property gains tax when you sell your home.

This process clearly requires patience, but it is well worth it if everyone ends up benefiting from the best possible option.

What happens if the sales price is not high enough to pay off the mortgage?

If you want to repay your mortgage early to pay off your debt when selling your home, you should factor the early repayment penalty into the sales price – provided, of course, that the property is not massively overpriced as a result.

There is a simple reason for this. If you repay the mortgage before the term, an early repayment penalty will be due depending on the remaining term and the interest rate. If you are forced to sell the property after just two or three years, and want to cancel the mortgage at the same time, this penalty can quickly amount to several thousand francs.

A property valuation is an important basis for negotiating the price when you want to sell. There are three common valuation methods to choose between. The hedonic method is generally used for single-family homes and condominiums.

The hedonic method (also known as the comparative value method): With this method, the property is broken down into components, such as location, size, number of rooms, standard of finish, etc. These components are then statistically compared to calculate a market value for your property. As a rule, this is the most common method for calculating the value of a single-family home or condominium. You can either use an online calculator or have the estimate carried out by a specialist.

The alternative methods for determining the value of a property are the capitalized income value method and the real value / asset value method. The capitalized income value method is mostly used for apartment buildings and commercial properties, while the real value / asset value method is chosen mainly when there is not enough comparative data available, such as for luxury and character properties, or for properties in remote areas.

Selling a house that is still mortgaged is possible in principle, but not easy. The best option will depend on your situation and financial circumstances. You can either sell the mortgage with the house, transfer the mortgage to a new property of your own, or pay off the mortgage and accept the early repayment penalty, where applicable.

You can only find the right solution to suit you if you involve your mortgage lender in the sale right from the start. This is because it is the lender who will ultimately decide whether to accept a potential new mortgage borrower as creditworthy, or whether to agree to transfer the mortgage to a new property.

Apart from this, the mortgage lender will also be able to assist you with the sale, whether it is to determine the value of the property or to optimize the sale from a tax perspective.