If you’re considering buying a new home but want to keep your current mortgage terms, porting your mortgage could be an option worth exploring. This process, popular in Scotland and beyond, allows you to transfer your existing mortgage to a new property. It can save you money and hassle by avoiding early repayment charges and retaining favourable interest rates. However, there are key steps to follow and misconceptions to clear up.
Let’s break down how porting works and address a common misunderstanding about whether the existing loan must be repaid during the process.
What is Mortgage Porting?
Porting your mortgage means transferring your existing mortgage loan to a new property. Essentially, it allows you to sell your current home and buy another without breaking your mortgage contract. It’s a useful option for homeowners who are satisfied with their existing mortgage terms and want to avoid early repayment penalties.
How Does Mortgage Porting Work?
The porting process involves several steps:
- Inform Your Lender
Notify your lender that you wish to port your mortgage. They will review your request, assess your eligibility, and provide guidance on the necessary paperwork.
- Sell Your Current Property
Once you’ve got lender’s consent, to begin porting, you need to sell your current home. The proceeds from this sale are typically used to pay off the remaining balance of your existing mortgage. This is a crucial step – despite misconceptions, the current mortgage must be repaid before the porting process can continue.
- Assessment of the New Property
Your lender will assess the property you intend to purchase to ensure it meets their lending criteria. This includes evaluating the property’s value, condition, and location.
- Adjustments to the Mortgage
If your new property is priced higher or lower than your current home, adjustments may be made:- If it’s more expensive, you may need to apply for additional borrowing.
- If it’s cheaper, the mortgage amount could be reduced, though this might still involve certain fees and an early repayment penalty.
- Reapplication Process
Depending on your lender’s policies, you may need to reapply for the mortgage. This can involve providing updated financial information, meeting the lender’s affordability criteria, and undergoing a credit check.
- New Loan Offer and Completion
If your application is approved, your lender will issue a new loan offer. Your solicitor will handle the redemption of the existing mortgage using the sale proceeds and arrange for the new ported mortgage to take effect.
Common Misconception: Do You Need to Repay Your Existing Loan?
A frequent misunderstanding is that you can port your mortgage without repaying the current loan. In reality, the existing mortgage must be redeemed when you sell your property. The porting process involves effectively closing out your current loan and starting a new one under similar terms.
This doesn’t mean you lose your favourable interest rate or other benefits. The lender effectively replicates your existing mortgage terms for the new property, provided the eligibility criteria are met.
What are the Advantages of Porting Your Mortgage?
- Avoid Early Repayment Charges: By porting, you can sidestep hefty fees associated with breaking your mortgage early.
- Retain Favourable Terms: If you locked in a competitive interest rate, porting allows you to keep it.
- Simplifies the Transition: For many homeowners, porting offers a smoother financial transition between selling and buying.
Things to Consider Before Porting
- Fees: While porting avoids early repayment charges, there may be administrative or arrangement fees.
- Affordability Checks: You’ll likely need to pass updated affordability checks, even if your circumstances haven’t changed.
- Property Criteria: The new property must meet your lender’s criteria, which can vary significantly between lenders.
Is Porting Right for You?
Porting a mortgage can be an excellent way to save money and retain favourable terms, but it’s not always the best option. Consider these factors:
- Will your lender approve the new property?
- Is your financial situation stable enough to pass a reapplication process?
- Are the potential fees worth the savings on early repayment charges?
By understanding the process and the responsibilities involved—such as redeeming your current loan—you can make an informed decision. Always consult with your lender and, if necessary, seek advice from a financial advisor or solicitor to ensure the process aligns with your financial goals.
Final Thoughts
Porting your mortgage can be a smart move if done correctly, but it’s essential to approach the process with clarity and caution. Knowing that the existing loan must be repaid is key, as is understanding the steps and fees involved. By carefully evaluating your options and seeking professional guidance, you can make the transition to your new home as seamless as possible.
For more information on this, please get in touch with our Property Department
DISCLAIMER
The content of this page is for information only. It is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Gibson Kerr Ltd accepts no responsibility for the content of any third party website to which this webpage refers. Gibson Kerr Ltd is regulated by the Law Society of Scotland.