What is porting a mortgage and how does it work? | YBS
What is porting a mortgage and how does it work?
Porting your mortgage is where you buy a new home, but keep your existing mortgage deal or rate. You “port” your deal from your current home to your new one.
What are the benefits of porting your mortgage?
Porting your mortgage deal means staying with your existing lender. It can be a good money-saving option especially if you are part way through a deal which carries exit fees and early repayment charges since you could avoid having to pay (or at least be refunded for) these when you move. It can also save you money if the mortgage rate you are already on is lower than any of your lender’s current deals.
Porting can be an easier option too since you don’t have to do as much research and compare rates, product deals and new lenders. Also, since your lender already has a lot of your information, you are less likely to have to complete a huge amount of paperwork.
How does porting your mortgage work?
It is important to note that it is the deal/rate that is ‘portable’, not the loan. You will have to reapply. The loan-to-value (LTV) of your new property, any changes in lending criteria and any changes in your personal circumstances since you first took out your mortgage will have an effect on your eligibility for the deal. Your financial situation and household income will still be checked and if your circumstances have changed and you no longer meet the lending criteria your lender may refuse.
Porting a mortgage deal follows the same process as switching to a new deal since, in effect, you are asking your lender to re-lend you the money to purchase your new property.
Of course when you buy a new home, the likelihood of it costing exactly the same as the house you’re selling is extremely low. You’re either going to want to borrow more money (or find it from elsewhere) or you’re going to need to reduce your mortgage amount.
Borrowing more
If you are moving to a more expensive property you may need to borrow more money. This is sometimes referred to as ‘topping up’. The additional amount that you would need to borrow would usually be put on a different deal, with a different rate, leaving you with (at least) two ‘parts’ to your mortgage. The additional borrowing part could well be more expensive since your LTV is likely to be higher.
If you had a mortgage for around £150,000 and when moving to a new property you find you need to borrow more than this, it is likely that you would need to make up the difference with another mortgage deal. Depending on the amount you sell your current property for, the price of your new home and how much you have to put towards the new purchase (equity), the amount left over will determine how much would be taken out on the new deal.
For example:
- Current mortgage balance: £150,000
- Current property valuation: £180,000 (equity of £30,000)
- New home valuation: £250,000
- New mortgage: £220,000 (£150,000 current mortgage balance + £70,000 additional borrowing, using £30,000 equity towards the purchase)
Borrowing less
If you move your mortgage deal to a cheaper property you will still have to meet the same product terms, in particular your new loan-to-value must not exceed your current one. This means you would be unlikely to be able to take the full amount of your mortgage with you when you move.
If you do borrow less on the deal you're taking than the amount you owe on your current mortgage early repayment charges may apply on the amount not being ported.
If you had a mortgage for around £150,000, your property is worth £200,000 and you decided to downsize to a home worth £150,000, you will have to reduce your mortgage amount to move it to the new property. The amount you sell your current home for will determine how much you need to reduce your mortgage by and how much you have available to contribute to the purchase of the new home.
For example:
- Current mortgage balance: £150,000
- Current property valuation: £200,000 (equity of £50,000)
- New home valuation: £150,000
- New mortgage: £100,000 (£150,000 current mortgage - using £50,000 equity towards the purchase)
In certain circumstances when porting your mortgage deal, you may need to pay an Early Repayment Charge (ERC). However your lender may refund any ERCs paid depending on when your new mortgage completes.
