What happens to your mortgage when you sell your house?

If you're selling your house for the first time, there are some things that you might be unaware of. One common question you might ask yourself is, "what happens to my mortgage when I sell my house?" For those upgrading from a flat to a condo or Executive Condominium (EC), you might also wonder how much of your HDB sale proceeds you'll be able to get. 

Don't worry, we're here to help you figure it out! 

Can you sell your house before paying off your mortgage?

Yes, you can. However, you'll still need to pay off your outstanding loan before the property is transferred to the buyer. 

Your sale proceeds will be used to pay off your mortgage

When selling your house, you will receive less than its sale price as you must factor in the remaining mortgage, CPF refund and grants, commissions and other admin payments. Here are a few things to take note of.

Pay your outstanding home loan

The first order of business is to pay off your outstanding home loan, whether it's an HDB housing loan or a bank loan. The outstanding amount will be deducted from your sale proceeds. 

Refund your CPF monies 

If you had used funds from your CPF Ordinary Account (OA) to pay for your house, you'd have to refund the principal amount, including accrued interest back to your CPF account. This could have been used to finance your downpayments, monthly loans and buyer's stamp duty. For those who had received any housing grant, you'd also have to return it to your CPF OA. 

You'd have to take into account the accrued interest for all of the above. This is the interest that the principal amount would have earned if it was sitting in your CPF OA instead of being used to pay for your house. Currently, the CPF OA interest rate is 2.5 per cent per annum. 

We've done a step-by-step breakdown of calculations in this article. Alternatively, you can log in to your CPF account or use HDB's sale proceeds calculator. 

It might feel like a lot will be taken from your sale proceeds, but not to worry, the amount you refund to your CPF account can be used to finance your next home. 

Miscellaneous fees - agent commission, resale levy etc

Your sale proceeds will also be used for other miscellaneous fees, including agent commission, legal fees and resale levy (if applicable). 

Agent commissions are negotiable, but the common practice is about two per cent of your home's selling price. You'll also be subjected to a resale levy if you have bought a subsidised flat and are planning to buy your next flat with subsidies. 

Should you pay your existing mortgage upfront if you're waiting for the completion of your new EC?

If you're upgrading from an HDB to an EC, what's great is that you won't need to sell your current home until six months after the collection of keys to your new EC. You also won't be subject to Additional Buyer's Stamp Duty. 

Some sellers might be considering if it's better to pay off their mortgage loan upfront or continue with monthly mortgage payments until they eventually sell their house. 

This will depend on your current cash flow and the financing options available to you. You'll need to ask yourself if you have enough money for living expenses if you finish paying your mortgage. You'll also need enough funds to pay the downpayment for your EC, legal fees, BSD and resale levy (if needed). 

However, there's no urgency for you to pay off your mortgage upfront because when you sell your property, the sale proceeds can be used for your remaining mortgage. Plus, it's always better to have more money in the bank for emergency funds or put your money in investments with higher returns. 

Ultimately, you'll have to weigh the pros and cons of each option. 

Exemption of existing property loan from TDSR 

The good news is that you can get a second property loan even if you have an existing one.

For instance, if you intend to sell your HDB flat to upgrade to a new property, your current monthly mortgage won't be factored into the Total Debt Servicing Ratio (TDSR). So, it won't affect the maximum loan amount you can get for your new property.

But you'll need to provide documents such as a copy of the approval letter from HDB and a copy of a letter of undertaking to complete the sale of your HDB flat.

For those selling an EC (after Minimum Occupation Period) or private property, you can exclude your monthly loan repayments from TDSR. This is done by providing a sale and purchase agreement (signed by both you and the buyer) and a certificate from IRAS to show that the stamp duty has been paid on the agreement. 

ALSO READ: What can you do with your flat after MOP?

This article was first published in 99.co.