Porting a mortgage: How to do it and what to expect
If you're selling a property for the first time and buying another, there can be a lot to take in.
And one of the biggest things to sort out when selling and buying is what happens to your mortgage once the keys to your property are in the hands of its new owner.
While a large number of people simply pay off their mortgage with the proceeds of their sale, many opt to port their mortgage to a new property.
So, what is mortgage porting, how does it work and what do you need to consider?
Let's take a look...
Mortgage porting is essentially transferring your mortgage on to a new property.
So, rather than paying off your mortgage when you sell your home, the loan amount moves with you to your new property and is secured against it.
However, porting isn't quite as it sounds.
Rather than the loan being directly transferred to your new home, you are basically given a new mortgage but on the same terms as your old one.
So, if you have a mortgage of £200,000 at an annual interest rate of 2.34% fixed for three years, those would be the terms of that £200,000 against your new home.
Any additional borrowing required to meet the purchase price of your new home would likely sit on different terms as a 'new' loan.
If you're on an attractive interest rate with your current lender, porting your mortgage can be a great way to continue on that rate.
So, if interest rates are no longer as appealing as they were when you bought your home, porting your mortgage could see you benefit from a lower rate of interest than you would if you took out a new mortgage.
And if you are in the middle of a fixed term agreement on your mortgage, you could face earlier repayment penalties if you were to clear the loan with your sale proceeds and take out a new loan.
This could eat into your available capital to buy your new home and, again, this is where porting can work really well.
Finally, while porting does sometimes incur arrangement fees, sometimes you only pay for a lender valuation on your new property - meaning porting can often work out cheaper than taking on a new mortgage, which might mean product fees, arrangement fees and a valuation fee.
While most people port their mortgages on to a property of higher value, it's not impossible to port to a cheaper property.
However, doing so will mean your loan to value (LTV) ratio between your property's value and your loan amount increases and your lender may not be willing to offer you the same rate on an increased LTV.
So, let's say you brought your current home for £400,000 with a mortgage of £320,000.
That's a loan to value of 80%, which probably meant you landed on a mortgage with a fairly attractive interest rate.
Fast forward a few years and you're selling your home and you have £300,000 remaining on the mortgage you wish to port.
But the purchase price of your new property is £330,000.
Porting that mortgage amount over would increase your LTV to 90%, meaning your lender could have an issue with offering you the same attractive interest rate.
As with anything when it comes to mortgages, whether or not you can port will be down to your lender.
While most mortgages are portable, your lender will want to undertake a new affordability test and examine your current income and debt amounts.
If your circumstances have changed since you took out your original mortgage, for instance if your income has dropped, your lender may decline your request to port due to the outstanding mortgage amount being unaffordable.
Moreover, if you have missed payments or are considerably older and, perhaps, nearing retirement, your lender could refuse on those grounds.
This depends on your circumstances and the nature of your mortgage agreement.
Generally, you should consider porting if:
* You are facing high early repayment charges
* Your interest rate is better than those on offer for new loans
* You are looking at high fees for a new mortgage
You should consider a new mortgage if:
* The fees for porting outweigh the savings
* You are needing to borrow more - porting would mean having your overall mortgage amount on two different interest rates and, potentially, different fixed terms, meaning re-mortgaging in the future would be more complex
Always speak to an independent financial advisor when considering whether to port your mortgage or apply for a new one.