Mortgage interest rates are on the rise, but in spite of this, many people are still choosing to buy property in Spain, as prices start to stabilise going into 2023. If you're renting and you want to own a property then the process is relatively simple. It all depends on finding the right property according to your needs and economic situation, and applying for a mortgage, either as a resident or a non-resident in Spain. However, things are different if you already own a property in Spain that has a mortgage. In this situation, is it possible to dissolve your mortgage to buy a new property? This is how to sell your house with a mortgage in Spain, including options to sell a property with a mortgage and buy a new one.
Selling a house for more than the mortgage and paying it off
Is it possible to cancel my mortgage? Yes! And this is the best-case scenario. However, for this to happen, you need the housing market to be doing well, meaning you receive more money than you owe the bank for the house. If this is a viable option given your financial circumstances and how much you end up selling for, the steps to follow to sell a flat with a mortgage are as follows:
- Confirm the sale price with the buyer and make sure that the money you are going to receive is going to be more than the money you owe the bank for the mortgage.
- Next, you must go to the bank and request a document known in Spain as a "Certificado de Deuda Pendiente" (Certificate of Outstanding Debt). This document must always be presented if a mortgaged property is to be sold.
- Sign the sale and purchase agreement in the presence of a notary, for which you will need to present the Certificate of Outstanding Debt.
- Once the buyer has given you the cheque for the price of the property, you must go to the bank and settle the outstanding mortgage debt. In many cases, it will also be necessary to pay the corresponding cancellation fees.
- Once you have paid off the debt with the money received from the sale of the house, as the price is higher than what you had to pay for the debt, you will receive the remaining money.
Selling a house for less than the mortgage and paying it off
Although selling a mortgaged house for more than the amount owed to the bank is the most desirable option, it is not always possible. Simply because house prices fluctuate and the price you receive for it may not be enough to pay off the debt. If this is the case, you can of course still sell the house with a mortgage. In this case, the steps to follow are as follows:
- The first thing to do is to confirm that you have a buyer for the property and that the sale price is lower than what you need to be able to repay the mortgage loan in full.
- The next step is to go to the bank and request the Certificate of Outstanding Debt (as in the previous case where the sale of the house was for a higher price than the mortgage). At the bank you will have to explain the situation and your intention to repay the part of the mortgage that you can cover with the money obtained for the house. This is important in order to modify the conditions and nature of the debt that will still be outstanding with the bank after the sale, which will become a new loan.
- When the sale is executed, the buyer will give you the cheque for the price of the property. In this case, the entire amount must be used to pay the mortgage (the part that is covered by the sum obtained from the sale of the property).
- From that moment on, the outstanding debt for the mortgage will be reformulated and will be considered a new loan. In this sense, as a new loan, it will have its own conditions and clauses, so it is important to review them correctly. In fact, it is very likely that the fees for the cancellation of the old mortgage and the origination fees for the new loan will have to be paid. However, this will depend on each bank.
A mortgage bridge
Banks offer a 'mortgage bridge' which allows you to join two mortgages in one. This type of mortgage is unknown to many owners, but is recommended for those who want to invest the money from the sale of their property in the purchase of a new home. However, both transactions cannot always be carried out at the same time. In this situation, a bridge mortgage can be a good option, as it will facilitate the payment of two mortgages (the house we want to sell and the house we have bought with a new mortgage) for a lower price than the one we would pay if we had to assume the payment of two mortgages separately.
Transfer the mortgage to the buyer
Another option for owners could be what is known as a mortgage subrogation in Spain, often known as a mortgage transfer. This allows you to get rid of the previous home and transfer the debt to the buyer.
This transaction needs approval by the bank because it requires changing the owner of the mortgage and making the buyer the one responsible for the debt. In order to do this the owner and the buyer will have to apply for the transfer. After the bank carries out a risk assessment on the potential buyer the transfer can be completed, with certain fees. The seller will have to pay certain fees for the assessment of the new buyer, the proceedings and the mortgage transfer. The latter won't be more than 0.5% of the the pending capital if the transfer is carried out during the first five years of the loan, or 0.25% if carried out after this period.
These are the steps to follow:
- The first thing to do in this case is to confirm with the buyer that they are willing to take over the mortgage on the property and to determine the conditions under which the sale and purchase and the transfer of the mortgage will take place.
- Next, you must go to the bank with which you have signed the mortgage together with the buyer. Explain the situation and that you want to carry out the mortgage subrogation or transfer.
- Then, the bank in question will carry out a study of the buyer's profile to guarantee that he/she is solvent and that he/she will be able to take over the mortgage payment without any problems.
- If the bank does not give the go-ahead, this option should be discarded. However, if the bank does give its approval, you will proceed to sign the mortgage transfer. That is to say, the modification of the contract that allows the buyer to become the new mortgage holder. From that moment on, the buyer will be responsible for the mortgage for all purposes.