What happens if I sell my home while I still have a home equity loan?

If you sell your home while you still have a home equity loan or Home Equity Line of Credit (HELOC), the following scenarios can occur:

1. Payoff of the Home Equity Loan or HELOC: When you sell your home, the proceeds from the sale are used to pay off your existing mortgage(s) and any outstanding balance on your home equity loan or HELOC. The payoff amount will include the principal balance plus any accrued interest and fees.

2. Lender Notification: Your mortgage lender and the lender for your home equity loan or HELOC will be notified of the pending sale by the closing agent or attorney handling the sale. They will work together to calculate the exact payoff amount.

3. Release of Lien: Once the proceeds are received from the home sale, the lender for your home equity loan or HELOC will release its lien on your property, indicating that the loan has been satisfied.

4. Remaining Proceeds: After paying off your primary mortgage and the home equity loan or HELOC, any remaining proceeds from the sale belong to you as the homeowner. You can use this money as you see fit.

5. Early Repayment of the Home Equity Loan or HELOC: If your home sale doesn't generate enough funds to cover the full balance of your home equity loan or HELOC, you will need to repay the remaining balance to the lender. This might be required immediately, or the lender may work with you to establish a repayment plan.

6. Prepayment Penalties: Review your home equity loan or HELOC agreement to check for any prepayment penalties. Some loans have penalties for early repayment, so be aware of these potential costs.

It's essential to communicate with both your mortgage lender and your home equity loan or HELOC lender well in advance of the home sale to ensure a smooth process. Additionally, consult with a real estate attorney or a financial advisor to understand the specific implications and requirements based on your loan agreements and local regulations.