Q: Am I legally required to pay off the remaining principal when I sell my home?
I'm selling a home for which I'm paying 2.5% interest rate. Instead of paying off the remaining balance, it would be nice to use the extra funds to buy a new home (now that interest rates are 7%). Then I'd just keep making my monthly mortgage payments on my original loan at 2.5% interest. My guess is this would not be allowed given the bank no longer has the home to use as collateral but I thought I'd ask at least.
A: Yes, since the property secures the loan and you are not an owner anymore. Also, the escrow company is obligated to pay off the loans on the property.
Lawyers, want to be a Justia Connect Pro too? Learn more ›
- California
- (916) 704-3009
- View Profile
- Answered
A:
No, you are not legally required to pay off the remaining mortgage principal when selling your home in California. However, the lender will require the mortgage loan to be settled as part of the sale process. You have a couple options:
- Pay off the loan in full with the sale proceeds. This satisfies the debt and frees you from the mortgage.
- Roll over or "portfolio" the mortgage into your new home loan. This allows you to transfer the low interest rate and remaining balance to the new property purchase. Not all lenders allow this, but some will.
- Take out a second mortgage or HELOC on the new home. This lets you access the home equity on the new property while keeping the old mortgage. You then continue making payments on both loans.
- Cash-out refinance the old home before selling. This converts the mortgage into a higher balance loan with cash proceeds you can use for the next purchase.
While you cannot simply keep making payments on the old mortgage without owning that property, these options allow you to take advantage of the low rate in various ways. Consult mortgage lenders to explore which strategies make the most financial sense for your situation when selling and buying.
Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.
The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.
Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.
