Home loan portability, also known as home loan substitution, happens when your lender allows you to secure the loan on your new property by selling the old one. Essentially, you’re able to transfer your home loan to another property.
With home loan portability, you can keep all the features of your current mortgage without having to change anything, including:
- interest rate
- monthly or annual fees and charges
- features such as redraw, offset, or line of credit.
Who can transfer their home loan to another property?
If you wish to port your mortgage to a new property, you’ll need to meet your lender’s criteria. You should talk to them as soon as possible to determine if you qualify.
Factors that determine eligibility include:
- Property value. As a guide, your new property will need to be equal or greater in value than your existing home, meaning a like-for-like substitution. You may, however, still be able to port your loan if you’re downsizing. However, this depends on how much equity you’ve built, how much is still outstanding on your mortgage and your new property’s valuation.
- Property size. A property generally needs to be at least 40 square metres. A lender will likely deem anything less to be risky.
- Property title. The title of the new property needs to bear the name of the borrower or guarantor whose name appears on the loan contract.
- Repayment history. You will also need a relatively clean history of timely repayments on your mortgage. However, once again, this will depend on your lender and how flexible they want to be.
If you are deemed ineligible, you may need to start the home loan application process again with a new lender. You can, however, shop around for a more competitive deal.
How does home loan portability work?
Home loan portability is a relatively straightforward process once you meet the criteria. You can opt for either a same-time settlement or a deferred settlement.
With a same-time settlement, your lender holds your current property as the security for your mortgage. The settlement dates for the property you are selling and the one you are buying are aligned. You will, of course, need to apply beforehand and include the details of the sales contract for the new property while continuing to pay your existing mortgage in the meantime.
Alternatively, you could opt for a deferred settlement. In this case, you have sold your property but have yet to purchase your new one. This may be due to a delay in settlement, for instance. So, your bank or lender will usually set up a term deposit and the proceeds of the property sale are held as security against your new loan. This process usually lasts up to six months, but this will differ between lenders. Once you have settled on your new property and the term deposit is closed, your new property becomes the security against the loan.
Advantages of home loan portability
Home loan portability offers several significant advantages for mortgagees.
Avoiding up-front costs
New mortgages come with plenty of up-front costs. Those could include stamp duty, legal fees (conveyancing), loan application and loan establishment fees. All of these can be avoided by continuing with your existing mortgage.
Avoiding other fees and charges
There are other charges you could avoid, such as break fees, that may apply if you currently have a fixed-term loan and need to terminate it for a new mortgage. Keeping an existing balance while substituting the security for the loan generally means the same fee structure, so there shouldn’t be any other hidden charges to worry about. Also, you’ll save on any potential exit fees from moving from one mortgage to another.
Saving time and energy
Moving home involves a lot of upheaval, especially if you have young children to care for, and continuity is a good thing if you’re time-poor. By keeping your current arrangements in place — interest rate, terms, features such as offset, redraw and direct debit facilities, the repayment structure and set-ups — you could save untold hours you would otherwise need to spend researching refinancing options.
Porting your mortgage also saves valuable turnaround time because much less paperwork is involved than when applying for a new mortgage.
Flexibility of settlement
As discussed above, you can opt for a deferred settlement, meaning you can port your mortgage before you find a new home as long as it meets the eligibility requirements.
Ability to adjust the loan’s amount and term
You may not be changing mortgages per se, but you should ask your lender if you can extract better terms and conditions wherever possible. Those adjustments could include a reduced interest rate or the fees currently payable. You could potentially increase the amount you borrow without having to change mortgages or ask to revise the term of the loan. You could also inform your lender of other offers to see if they’re willing to match them.
Disadvantages of home loan portability
There are also potential pitfalls with home loan portability. Before deciding, you should always talk to a real estate expert, such as a mortgage broker or a conveyancing solicitor, about your situation.
Portability and valuation fees
As mentioned above, the savings you make by porting your loan are considerable. However, some lenders may charge a fee to port your mortgage, so check with yours first to see what you may be up for. Remember that, whatever it is, it will still likely be much less than the fees you would be up for with a new, restructured mortgage. Additionally, you may need to pay for a valuation on your new property to satisfy your lender’s requirements to port your loan.
Inability to change loan structure
Your lender may not be flexible with the current structure of your mortgage. You could be stuck with the same terms and conditions, such as the interest rate and annual fees, for a long time if you do port it to your new property. This shouldn’t be an issue if you are happy with your current mortgage and want to port it. If you are in any doubt, you should talk to a mortgage broker or other property specialist about finding the best possible mortgage deals.