Can you sell a property with a mortgage in Spain? Here's what you need to know

Selling a house with an outstanding mortgage in Spain is a common conundrum.

A mortgage can make selling more complex, posing questions about the transaction's viability and the steps needed to carry it out successfully.

This article discusses whether you can sell a property with a mortgage in Spain, how to approach the process, and the steps you need to take.

Can a mortgaged house be sold in Spain?

Although people often buy a house to last a lifetime, situations can change. When you take out a mortgage, you may sign a loan with a repayment spread over time, reaching up to 30 or 40 years. It may seem like a long time, but life can take many twists and turns.

A house with a mortgage can be sold, and there are many reasons for this situation: a job change, a move, an inheritance, a divorce, or the birth of a new child. All these scenarios could make us want to move house, and having a mortgage is not a problem.

Paying off the mortgage at the time of sale

This is the best-case scenario. But, for this to happen, we need the real estate market to be doing well. At least enough to receive more money than we owe the bank for the mortgage. If you can opt for this solution, you should take the following steps to pay off your mortgage at the time of sale:

1. Confirm the sale price with the buyer, ensuring it is more than what you owe the bank for your mortgage.
2. Go to the bank and request the Certificate of Outstanding Debt. This document must be presented whenever a mortgaged property is being sold.
3. Sign the real estate purchase agreement before a notary and present the Certificate of Outstanding Debt.
4. Once the buyer has given you the cheque for the property price, you must go to the bank and pay off the outstanding mortgage debt. Moreover, you will usually have to pay the corresponding cancellation fees.
5. Once the debt has been settled with the money from the house sale, we will receive the remaining money.

Selling for less than the mortgage

Selling the house for a price higher than what you owe the bank is the most desirable option, but it is not always possible. House prices fluctuate, and the price you receive for the house may not be enough to pay off the debt. However, in this situation, a sale can also be possible:

1. You need to confirm that you have a buyer for the property and that the sale price is lower than what you need to repay the mortgage loan in full.
2. Go to the bank and apply for the Certificate of Outstanding Debt. Explain the situation and that you intend to repay part of the mortgage, which you will cover with the money from the sale. This is important to change the conditions and nature of the debt that will still be outstanding with the bank after the sale, which will become a new loan.
3. When the sale is complete, the buyer will give the seller a cheque for the property price. In this case, the entire amount must be used to pay the mortgage.
4. From then on, the outstanding mortgage debt will be reformulated and considered a new loan. As a new loan, it will have its own conditions and clauses, so it is important to review them correctly. Fees for the cancellation of the old mortgage and set-up fees for the new loan will most likely have to be paid. This, however, will depend on each bank.

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Subrogating the mortgage to another person

Besides the options above, you can also transfer the mortgage to the buyer. In other words, change the mortgage holder of the property so that the buyer takes over the mortgage:

1. The first step is to confirm with the buyer that they are willing to take over the mortgage on the property and determine the terms and conditions of the sale and the mortgage transfer.
2. You should then go to the bank with the buyer. Explain the situation and that you want to transfer the mortgage.
3. The bank will then analyse the buyer's profile to ensure they are solvent and can pay the mortgage.
4. If the bank does not approve, you should rule out this option. However, if the bank does approve, the mortgage transfer will be signed, i.e., the contract will be modified to allow the buyer to become the new mortgage holder. From that moment on, the buyer will be responsible for the mortgage to all effects.

Bridging mortgage, a loan to move house

Another option is to apply for a bridging mortgage. This is recommended when the money from the property sale is to be invested in buying a new home. However, both transactions cannot always be carried out simultaneously.

In this situation, a bridging mortgage can be a good option, as it will facilitate repaying two mortgages for a lower price than what you would have to pay if you had to pay two mortgages separately. Follow these steps to opt for this solution:

1. First, apply to the bank for a new mortgage to buy a new home. Also, explain that you want to apply for a bridging mortgage to make paying two mortgages easier.
2. The bank must study the case, and if it accepts, it will offer a bridging mortgage. Bridging mortgages are usually subject to a certain period, ranging from several months to several years. You will have to sell your first home during this time.
3. While the first home is for sale, you will not pay two mortgages but the bridging mortgage. It is a monthly payment that will be higher than the one you pay for the first house but less than what you would pay if you had to pay the two mortgages separately, as in most cases, they have a capital grace period of 100% of the loan or the part corresponding to the first guarantee.
4. From then on, the bridging mortgage is paid off, and you only pay the second mortgage with its corresponding instalments.

Costs of selling a property with a mortgage

Selling a mortgaged house involves costs that vary according to the sale price, the amount of outstanding debt and the operation being carried out. The main costs to be taken into account are as follows:

• Estate agent's fees: if you hire an estate agent to handle the sale, you will have to pay a fee, which usually depends on the sale price.
• Mortgage cancellation costs: if you settle the debt with the bank, you must pay an early cancellation fee, usually 0.5% or 0.25% of the outstanding capital, depending on the mortgage date. In addition, you must request a certificate of outstanding debt and carry out a registration cancellation, which entails notary and registry fees.
• Taxes: When selling a house, you must pay municipal capital gains tax, which is taxed on the land's increase in value. These taxes depend on the property's value, the time since the purchase and the seller's personal circumstances.

Find out what costs are associated with selling a house in Spain

Should you sell your house if you can't afford the mortgage?

Selling your home if you cannot pay your mortgage may be a viable option, but it depends on your situation and the alternatives you have. Before deciding, try to negotiate a solution with your bank so you can keep your home, such as a moratorium, a grace period or an extended term.

If none of these options work, selling the house may be better than not paying the mortgage, as you will avoid defaulting and suffering the legal and financial consequences that this entails.