When selling your home, your mortgage is paid off on the day of the legal transfer at the notary’s office. The notary settles the sale proceeds directly against the outstanding mortgage balance, after which the remaining amount is paid out to you. In this article, we walk you through exactly how this works and what you need to know in advance.
What happens to your mortgage on the day of transfer?
On the day of the legal transfer, the notary pays off your mortgage directly using the sale proceeds. The buyer or the buyer’s mortgage lender transfers the purchase amount to the notary, who then settles the outstanding mortgage debt with your own bank. The notary subsequently deposits the remaining amount into your account.
The notary plays a central role in this process. They receive a redemption statement from your mortgage lender in advance — an official document stating how much remains outstanding on the transfer date, including any accrued interest. This amount is settled on the day itself.
After the mortgage is paid off, the notary also arranges for the removal of the mortgage from the Land Registry. This means the mortgage right is formally dissolved and the property is registered in the buyer’s name free of any mortgage. This process generally happens automatically and requires no action on your part.
What is the difference between equity and a residual debt?
Equity arises when the sale price is higher than the outstanding mortgage balance. A residual debt is the opposite: the sale price does not fully cover the mortgage, and you remain liable to the bank for the difference. The distinction between the two has significant financial consequences for what happens to you after the sale.
Equity: money left over after the sale
If your home sells for more than the amount you still owe on your mortgage, you will have money left over after repayment. This amount is called equity. The notary transfers this amount to you after the transfer. Bear in mind that costs such as estate agent fees and notary fees are also deducted from the sale proceeds.
Residual debt: when the proceeds fall short
If the sale price is not enough to pay off the full mortgage, you are left with a residual debt. You are then required to make up the difference yourself. In some cases, a residual debt can be rolled into a new mortgage, but this depends on the terms and conditions of your mortgage lender. It is advisable to discuss this with a mortgage advisor well in advance.
Do you have to pay a penalty for paying off your mortgage early?
Yes, in many cases you will pay an early repayment charge if you pay off your mortgage before the agreed fixed-rate period ends. The bank loses out on interest income and is entitled to charge a fee for this. The amount of that fee depends on the remaining term of the fixed-rate period and the difference between your interest rate and the current market rate.
When selling your home, however, an early repayment charge is not always applicable. Many mortgage types include a clause stating that you can repay penalty-free upon sale of the property. This applies in particular to mortgages where the property serves as collateral and the loan is fully terminated. Check your mortgage deed or confirm this with your bank.
If an early repayment charge does apply, the notary will also settle this amount on the day of transfer. In that case, the bank’s redemption statement will already include the total amount with the charge factored in. This way, you will not be faced with any surprises after the fact.
What can you do with the equity after the sale?
After selling your home, you can use the equity in a number of ways. The most common options are: using the equity as a down payment on a new home, saving or investing the amount, or paying off debts. The best choice for you depends on your personal situation and plans.
If you use the equity to purchase a new home, the equity reinvestment rule becomes relevant. This tax regulation stipulates that you are in principle required to use the equity toward the purchase of your next home if you wish to deduct the mortgage interest on the new loan portion. If you do not, you forfeit part of your entitlement to mortgage interest relief.
If you wish to save or invest the equity, you are free to do so. Do keep in mind that the amount will then be counted as part of your assets for wealth tax purposes. It is advisable to have a financial advisor calculate the tax implications in advance, so that you can make a well-informed decision.
How does paying off your mortgage work when you are buying a new home at the same time?
If you are selling one property and buying a new one simultaneously, both transactions are scheduled at the notary’s office on the same day wherever possible. The equity from the sale is then applied directly as a down payment for the new purchase. This is called a combined transfer and prevents you from temporarily holding two mortgages at once.
In practice, this works as follows:
- The transfer of your current home takes place in the morning at the notary’s office.
- The notary pays off your existing mortgage and calculates the equity.
- That same afternoon, the transfer of your new home takes place.
- The equity is applied directly as a down payment toward the new mortgage.
If it is not possible to schedule both transactions on the same day, you can take out a temporary bridging loan. This allows you to borrow against your anticipated equity in advance, so you can purchase the new home before the sale has been fully completed. Bear in mind that a bridging loan comes with additional costs.
Good timing and close coordination with your mortgage advisor and notary are essential when combining a sale and a purchase. Make sure all parties are informed of both transactions in good time, so that the redemption statement and the new mortgage deed are ready when needed.
How we help you sell your home
Selling a home involves more than simply finding a buyer. The mortgage settlement, the timing of the transfer, and the use of the equity all require careful preparation. Urban Homies supports you throughout the entire sales process, from strategy to handing over the keys.
What we do for you:
- Valuation and market analysis so your home is listed at the right price
- Professional presentation with photography and a tailored listing
- Guidance through negotiations to get the most out of the sale
- Coordination with the notary for a smooth mortgage settlement and transfer
- After-sales support following the transfer, including if you are looking for a new home afterward
Want to know what your home is worth or how we approach your sale? View our sales guidance services or get in touch directly for a no-obligation conversation.
