How to sell a house with a mortgage

Selling a mortgaged house is an increasingly frequent inquiry, especially in a dynamic real estate market where many people change homes without having finished paying for the previous one.

Whether for personal, economic, or work reasons, if you're thinking of selling your property and still have a mortgage, here we explain how to do it step by step, without complications and with all available options.

Can you sell a house with a mortgage?

Selling a home that is still mortgaged is perfectly legal in Spain as long as the lien is satisfied by the seller or transferred to the buyer (subrogation).

It doesn't matter if the mortgage is fixed-rate, variable, or mixed-rate; the law requires that the Property Registry receive the property free of liens or with new approved bank ownership.

This practice is common in various situations, such as divorces, job relocations, or simple home changes. Financial institutions are accustomed to these processes and usually provide debt certificates (so the seller can financially cancel the mortgage) and, when necessary, authorize loan subrogation.

Steps to sell a mortgaged house – Total cancellation by the seller

An essential requirement for the seller to be able to totally cancel their mortgage is that the sale price is greater than the mortgage debt amount.

Although the procedure closely resembles that of a property free of liens, there are additional procedures that should be prepared in advance to avoid delays at the notary and Registry. At Galgo Real Estate we can streamline these procedures and coordinate schedules with the financial institution.

Steps in selling a home with a mortgage:

1. Request the outstanding debt certificate (or "outstanding balance") from the bank.
2. Negotiate with the institution whether you will cancel completely, subrogate the mortgage to the buyer, or use a bridge mortgage.
3. Set the signing date at the notary and coordinate the presence (or power of attorney) of the bank representative.
4. Settle the debt during signing: part of the price goes to the bank and the rest is deposited to the seller.
5. Cancel the lien at the Property Registry, or record the subrogation, with the deed and form 600 for AJD.
6. Pay expenses and taxes: cancellation commission if applicable, notary, registry, AJD, municipal capital gains tax, and possible income tax on capital gains.

What if the debt is greater than the sale price?

When the market value doesn't cover the mortgage, the so-called "underwater mortgage," you have several options: settle everything you can with the money from the sale and convert the difference into a personal loan, negotiate a debt reduction, or agree on extra time with the bank. Each alternative involves different costs and requires an analysis of your future payment capacity.

Alternative options to total cancellation

It doesn't always pay to extinguish the mortgage on the same day as the sale. These two formulas avoid early amortization and can reduce costs depending on your situation:

Subrogation to the buyer

The new owner assumes your loan with identical conditions. The bank studies their solvency and, if approved, signs a change of ownership at the notary. The seller saves the cancellation commission and the buyer avoids the costs of establishing a new mortgage.

Bridge mortgage

Ideal if you plan to buy another home before selling the current one. The institution temporarily groups both loans and grants a partial grace period, so you pay a single reduced installment until you close the final sale.

What happens if I sell my mortgaged house?

One of the most common doubts is whether you can sell a house without canceling the mortgage. The answer is no; for the new owner to receive the home without liens, it's necessary to cancel it at the notary or subrogate it to their name, with bank authorization.

Regarding the costs associated with canceling a mortgage, it's common to assume an early cancellation commission, from 0% to 2% according to the mortgage contract, in addition to notarial expenses, registry fees, and the Tax on Documented Legal Acts (form 600). This is added to the municipal capital gains tax, which the seller pays, and possible income tax if there are capital gains.

As we've already seen, if the buyer wishes to assume your loan, subrogation is a valid option provided the financial institution approves the operation.

If you sell above the debt, you cancel the loan, register the cancellation, and keep the surplus, minus taxes and expenses. If you sell below, the difference remains your responsibility; you'll have to agree with the bank on how to pay the outstanding amount (new loan, debt reduction, or additional guarantee).

Selling a mortgaged home is not only possible but perfectly feasible if you know the steps and procedures for dealing with your financial institution. Whether canceling, subrogating, or using a bridge mortgage, there are solutions for almost all cases.