If you’re thinking about taking your next step on the property ladder, but haven’t yet paid off your current mortgage, you have two options. You can either: pay off your mortgage when you sell, and then apply for a new one, or take your mortgage with you to your new home.
The process of transferring a mortgage from one property to another is called ‘porting’. In this article we take a look at the pros and cons of porting a mortgage, and consider when it might be in your financial interest.
Does it make financial sense to take your mortgage with you?
As with many large financial decisions, it’s important to weigh up the pros and cons before you take the leap. With mortgage porting there are many factors that will impact whether it’s the right decision for your personal situation:
Pros
- Porting a mortgage means that you get to keep your current rate.
This is a particular positive if you currently have a very good fixed-rate product.
- If you’re still within your mortgage’s fixed term, porting is likely to be cheaper than remortgaging.
Although there are some fees when you port, you won’t have to pay any exit fees or early repayment charges.
- Lower risk
If your personal circumstances haven’t changed massively during your current mortgage term, and the property your planning to buy is of a similar value, there is very little risk of being rejected by your lender.
- Porting a mortgage can make you more attractive to lenders.
If you’re buying a more expensive property but are able to cover the extra cost, you actually decrease the risk for the lender – because a more valuable property is much better security.
Cons
- You’ll need to requalify for your mortgage.
Your lender will want to value the property you’re hoping to buy, and do a range of financial checks to make sure you can afford your monthly repayments. This means if your financial situation has changed – for example you’re now a freelancer, or you’re purchasing a more expensive property – you may find that you no longer meet your lender’s eligibility criteria.
- Porting to a property of a different value can be complicated.
If you want to take your mortgage with you to a more expensive property, you’ll either need to cover the difference in cost with your savings or take out another loan at the same time. This new loan will likely be subject to different conditions and have a different end date to your current mortgage. This can make it more difficult to remortgage in the future.
On the other hand if you’re looking to transfer your mortgage to a cheaper property, it’s likely that you won’t be able to take the full loan amount with you. This is because the ratio between your loan and the value of the property has to remain the same. If you have been borrowing 85% of the value of your current property, you will only be able to borrow 85% of the value of your next property.
- Porting a mortgage isn’t free.
Because you’re technically ‘reapplying’ for a mortgage, you’ll have to pay valuation and arrangement fees. However, you won’t have to pay any exit or early repayment fees.
- Not all lenders will let you transfer your mortgage to a new property.
You should be able to find out whether your mortgage is eligible for porting in your original offer letter. If you’re unsure, get in touch with your mortgage provider. They will be able to detail your options for you.
Is porting right for me?
Ultimately whether you decide to transfer your mortgage to your new home will depend on your particular circumstances.
If you’ve recently taken out a low interest fixed-rate deal, it probably makes sense to try and take your loan to your new home. On the other hand, if you’re coming to the end of your fixed term, or interest rates have dropped dramatically, it’s likely that you’ll be able to find a cheaper alternative with a bit of shopping around.
As with everything related to big financial decisions and taking on more debt, make sure to seek advice from an independent mortgage advisor. They’ll be able to provide advice tailored to your specific situation and make sure you are getting the best deal possible.
