Most home buyers take out a home loan with a term of 25 to 30 years. But what if you want to switch homes before your mortgage is paid off?
Mortgage porting is a home loan feature offered by some lenders that allows you to transfer your existing mortgage to a new property. Simply put, you are allowed to continue with the same mortgage, but the security property changes from your current home to your new home.
What is the benefit of mortgage porting?
Porting your mortgage saves you the time, cost and hassle involved in closing one home loan and setting up another. Instead of applying for a new home loan or refinancing your existing loan, you can use loan porting to switch the property on which your mortgage is secured, allowing you to continue with the same loan balance, interest rate and term. You can also continue using the features attached to your mortgage, including your redraw facility and offset account.
Loan porting is generally preferred by homeowners with a fixed-rate mortgage who want to avoid break costs by closing the loan during the fixed-rate period. Those on a variable rate mortgage may also consider this option to save on upfront costs while setting up a new loan. However, it’s worth comparing other home loan products in the market, as you may be eligible for a lower rate on your home loan than what you are currently paying. Furthermore, the loan amount cannot change when you port your mortgage though you may be allowed to apply for a top-up with some lenders.
How does home loan porting work?
Your home loan is secured on your current property. When you sell this property and buy a new one, the loan security is simply transferred from your existing home to the new property. However, the settlement of the two properties needs to be aligned for this arrangement to work. If there’s a gap between the settlement of the two properties, porting your mortgage may not be possible.
Potential traps you should know about
While porting a home loan is a convenient option for some homeowners, you need to be aware of the simultaneous settlement requirement that could be tricky to pull off. To port your home loan, some lenders require you to align the settlement dates of your property sale and purchase. However, this is not always possible, as the buyer or seller may have their own conditions. Still, it’s worth checking with your lender for the exact requirements, as there are a few lenders who’ll accept your application if you can provide Contracts of Sale for both the properties, even if the settlement dates are slightly apart.
Another aspect you need to be mindful of is the value of the new property. Many lenders require you to purchase a property that’s equal to or higher in value than your existing home. The lender is likely to conduct a valuation of both properties before approving your porting request. You’ll pay for the valuation from your pocket, and it could cost you around $500. You’ll also pay Lenders Mortgage Insurance (LMI) if the size of the borrowing exceeds 80% of the new property’s price.
Remember that convenience often comes at a cost. While the idea of shifting the same mortgage rate and features to a new property is appealing, there may be other competitive home loan deals in the market that could help you save more money. Therefore, it’s worth exploring your other options before you decide to port your mortgage to make sure you get your money’s worth. You could speak with a mortgage broker to learn more about loan porting and whether it’s a good option for you.
