Financing Basics for Sellers

 Your Mortgage

So you've decided to sell your home. What happens to your mortgage? Well, there are few options; it's important that you understand the terms of your current mortgage to see how these apply to you:

Discharging your mortgage - When selling their home, most people use the proceeds from the sale to discharge, or pay off their mortgage loan. A fully open mortgage will allow you to do this without penalty. However, if you have a closed mortgage, you may have to pay substantial penalties to do this before its predetermined end date--often equal to several months of interest payments.

Porting your mortgage - If you are buying another home, you may be able to "port" your mortgage--in other words, take it with you and apply it to your new home purchase. This is especially attractive if your current mortgage has a better interest rate than what the lenders are now offering.

Mortgage assumption - If you aren't buying another home, you may be able to get the buyer to assume, or take over your mortgage. Essentially, the buyer agrees to assume responsibility for it as part of the price they're paying for the house. Mortgage assumptions are generally subject to the lender approving the buyer.


 Tax Implications

Under most circumstances, when you sell your primary residence you don't have to pay tax on any capital gain (increase in your home's value). However, if you're selling a vacation or rental property, talk with your accountant about how the sale will affect your taxes--you will likely have to pay capital gains taxes.