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What Happens If I Sell My House for Less Than the Mortgage?

This is an increasingly common situation called ‘negative equity’. This is where the total value of loans secured on your property are higher than the sale price you achieve for your home.

The first thing you should consider if you find yourself in negative equity is that you will need your mortgage lender’s permission to sell your home. Your mortgage company can block a sale if the sale price is less than the outstanding loan.

If you do obtain permission to sell your home, you should remember that you will remain liable for any debts that remain once your home is sold. The debts are not simply written off on the day that you sell your property. Your mortgage company can take legal action to recover the debt from you even after the property has been sold.

There are various different ways that you can pay back the amount of mortgage and secured loans that remain outstanding once your home is sold:

  • Convert the secured loan to an unsecured loan – You will normally have to seek permission from your secured loan lender to do this
  • Take out an unsecured loan and repay the negative equity as a lump sum
  • Cash in other resources such as savings, investments or an endowment policy to raise enough money to repay the negative equity
  • Ask your mortgage company to secure the negative equity on your new home (if you buy a new property) – many lenders have special ‘negative equity’ schemes available to loyal borrowers

If you are in negative equity, you should only sell your property as a last resort. Consider other options such as renting out the property. Your mortgage and secured loan lenders may give you permission to let your home for a period in order that you don’t have to sell the property for less than you owe.

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