I am thinking about buying a property with a mortgage in the UK, living in it for 3 years, and then selling it. This is because at that point, I will probably be moving out of the city I am currently in, and I would then want to buy another place elsewhere. I have a decent deposit and so buying and selling soon after is still cheaper than renting for this 3-year period.
Please could somebody explain how this would work with regards to paying off the mortgage early?
So hypothetically let's say it is a 25 year mortgage (full capital repayment), borrowing £300k, at a fixed interest rate of 4%. After 3 years, I then sell the property (let's say it hasn't increased in value) for £300k. Let's say by then, I will have paid off about £22k, and so there will still be £278k remaining to pay.
Which of the following scenarios is correct:
1) I can just pay off the entire remaining mortgage of £278k with the cash I received from the sale, all in one lump sum.
2) If I want to pay it off in one lump sum, I will have to pay more than £278k, to account for the fact that I originally "agreed" with the bank to pay it back over 25 years, and therefore the bank wants to gain some of this interest which it would have otherwise not received.
3) I just have to keep paying it back monthly over the 25 years, as originally agreed, and I will have to use the £300k I received for the sale and whatever other cash I have to fund this.