Short answer: Yes. The question is not whether or not you can sell, but if you should. I’m going to explain, in the briefest, simplest way I can, what you should consider if you have a mortgage and you’re thinking about selling.

What is a mortgage?

A mortgage is simply a pledge taken by the homeowner to pay back a loan used to purchase their home, plus an agreed amount of interest; the person who owes the money is called a borrower, while the person who provided the loan is called a lender.

How is a mortgage loan paid off?

The loan is paid off monthly, in a payment that is part principal and part interest. The principal is the amount of money that goes towards the loan balance, while the interest is the additional percentage that is paid to the lender for effecting the loan.

As you tear down your loan balance with each monthly payment, the amount of interest you pay each month decreases while the amount going towards your principal increases.

What happens to the mortgage when you sell?

There are two major variables that can affect how a mortgage is handled when selling your home: the amount of money you still owe the lender (loan balance), and the price your home is selling for.

-Profit Scenario: the best situation you could find yourself in is one where the proceeds of the sale exceed your loan balance and closing costs, allowing you to pay off the loan and pocket the difference. Not only would this absolve you from your mortgage, but you’d be saving yourself the hassle of paying interest on the remaining loan balance; though in some cases the lender may charge a penalty fee for ending the loan prematurely.

-Short Sale Scenario: In the event that your home’s value drops below your outstanding loan balance and you’ve had a hard time making your mortgage payments on time, the lender may agree to accept a lower payout to terminate the loan; this process is called a short sale. Short sales are more common among homeowners in tight spots, and allow borrowers to avoid foreclosure of their property and/or declaring bankruptcy.

-Assumed mortgage scenario: In situations where the lender and buyer are both in agreement, the loan may be assumed by the new owner of the home instead of being prematurely paid in full. It is not common for the buyer to assume the seller’s mortgage, but that option may be selected if it is beneficial to the parties involved.

Conclusion

Selling your home is not a decision you should make on a whim. That said, there are circumstances in which selling is the best available route. If you ever find yourself in that position, do not let the existence of a mortgage intimidate you. It’s a matter of evaluating your situation and figuring out what the right decision is for you.

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