Sell a house in Negative Equity: what interest rate applies to the balance?

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amgd28

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If you sell a property for less than the outstanding mortgage and continue to make monthly repayments to clear the balance, what rate is typically applied to the outstanding balance?
I am thinking that from the bank's point of view, the balance is unsecured by an asset, so I would have thought it logical for personal loan rates to apply rather than mortgage rates.
Or do they keep the existing mortgage rate even though the deeds of the house and thus aset supposedly securing the mortgage have been released?

Example:

Mortgage of 340k for a house sold for say 280k (bought during boom for 380k)
Current mortgage tracker rate is 2.3%.
All proceeds of sale go against mortgage to release the deeds for the sale.
60k deficit which vendor is prepared to pay off as per existing mortgage repayments. Does this 60k get charged interest at the previous 2.3% OR is it reset to, say 8% which woul be a typical rate for an unsecured personal loan for that amount?

I've searched for any discussion on this particular issue and not found it. The answer could mean the difference for a lot of people between selling and taking their medicine, or trying to hang on a good bit longer
 
As far as I know, If you sell a mortgaged property the mortgage must be cleared in full.
The funds to do this come from the sale and if this is not enough, then the balance must be provided from another source.
If this other source was to be an unsecured loan, then the normal rates for this type of borrowing would apply.
 
callybags is correct.

The property quite simply cannot be sold without the agreement of the lender and it is for them to agree any terms.

I have not yet heard of anyone who has been able to sell a property in negative equity and come to an arrangement with their lender.

mf
 
Interesting.
Don't think that many people actually appreciate that. It's a bit academic for me, but when I thought about it, I kind of assumed that what you guys are saying was the case. Most people I spoke to though seemed to assume that the mortage rate would still apply!!
 
My friend is in this situation. She bought the house for 380k with her boyfriend. They have now split up and she was going to take over the whole mortgage herself, however the bank have refused her.
So their only option is to sell up and the house is worth 280k now.

Her bank have advised herself and the ex boyfriend to take out a personal loan of 100k to clear the debt.
They are selling the house for 280k, plus taking out a loan for 50k each.
I'm not sure how the maths work out, but that's what they have to do, the bank have advised her to do this.
 
Hi Pricilla, I'm sure there would be another way round this besides taking out a loan to pay the balance to the bank? The bank want their money so it's ok for them but is it right for your friend to lumber herself with a €50000 debt? This needs thinking about first.
 
Well they could just keep the house and continue to make the payments?
But if that is not feasible, are'nt they better off with a smaller debt than they currently have?
What other solution is there?

mf
 
It seems they have gone through every solution and this is the only option for them. The ex boyfriend is moving abroad and they need to sell the house asap.

It's hard to believe that they were living together in a beautiful house a few months ago, and now she has no home and a huge debt with nothing to show for it. I'm sure there are lots of people in similar situations or worse, it must be very hard on them.
 
pricilla said:
Her bank have advised herself and the ex boyfriend to take out a personal loan of 100k to clear the debt.
They are selling the house for 280k, plus taking out a loan for 50k each.
I'm not sure how the maths work out, but that's what they have to do, the bank have advised her to do this.
Click to expand...
That is shocking.Your friend needs to be careful that the ex doesnt do a runner.50k or effectively hand the keys back?
 
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