With a lifespan of up to 30 years, a home loan is one of the longest-term commitments you’ll ever make. But, this doesn’t necessarily mean you’re committing to the same home forever.
While living in one house for decades was once common, this no longer reflects the realities of modern life.
In fact, research shows that most Australians will move home at least once in the next 15 years, which is less than half a standard loan term. Homeowners – especially those with young families – outgrow their current homes, move to different cities or add additional properties to their investment portfolio.
But as anyone who has ever been through the home loan application process knows, it can be challenging and time-consuming. There’s a good chance you won’t want to jump through the same hoops again when you’re selling your home and buying a new one. This is where home loan portability comes in – a feature that allows you to transfer your existing loan to a different property.
Here, we dive into everything you need to know about taking your loan with you – including what is home loan portability, how it works and what the pros and cons are.
Loan portability is when you keep your existing loan (the current balance, interest rate and attached features), but change the security (the property) attached to that loan. In other words, it allows you to sell your existing property and buy a new one without having to apply for a home loan again.
This feature was introduced to most mortgage packages back when exit fees existed, to give lenders a desirable alternative to refinancing. While exit fees have now been abolished, many homeowners still choose to go down this path due to being quicker and more convenient. It can also help homeowners avoid the fees often involved in refinancing, like application, loan establishment and exit fees.
That said, taking your mortgage with you isn’t without its challenges, and it’s not always right for everyone – so it’s important to know what it involves.
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To understand how loan portability works, it can be helpful to think about when you move house but keep the same energy and gas provider. You’re simply changing to a different property, but are keeping the same user information, account and package (although, the terms of this might change slightly depending on the needs of your new property!)
Porting your mortgage works in a similar way! When you switch your home loan over to a new property, you also normally bring over any features associated with this account – including your online banking account, ATM card and linked offset account.
Most modern mortgages include inbuilt portability features that allow you to move your mortgage. In order to make use of this feature, you will normally need to call your lender, apply online or go into a branch, and mention that you want to transfer your loan to a different property. From here, you will be informed of any fees, guidelines or requirements involved. You will also usually need to sell your existing property before buying your new place, although this isn’t always the case.
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Porting your mortgage can be a great choice for people who want a more convenient and cost-effective alternative to refinancing – especially those with mortgages that have fixed interest rates. However, it’s not always the right path for everyone. It’s important to weigh up the advantages and disadvantages in light of your own financial situation. Here’s what you need to know:
Convenience: By sticking with the same home loan, you’ll keep your existing account information, bank accounts, cards and offset account – which means less admin for you!
Time-effective: Moving your mortgage allows you to avoid the hours spent exiting your existing home loan and applying for a new one. This can mean you get into your new home faster.
Saved costs: Refinancing a fixed home loan can add up to hundreds or potentially thousands of dollars in break fees. Porting your mortgage allows you to avoid those added costs.
Lock in your fixed rate: If you’re happy with the fixed rate on your home loan, you’ll be able to hang on to this as you’re simply switching the security on the mortgage.
Switch your loan type: On the flip side, if you’re looking to change from a fixed home loan to variable (or vice versa) moving your home loan can be a convenient opportunity to do so. However, it’s important to note that not all lenders will allow you to do this, so be sure to check first.
Top up your loan: If you’re purchasing a more expensive property, you may potentially be able to get additional funds added to your mortgage when switching over.
Simultaneous settlement: You will be required to line up the settlement dates of your property sale and purchase. This can sometimes result in a logistical nightmare, as your vendor and purchaser likely have their own timelines and requirements.
Lack of flexibility: If you’re looking to port your existing loan, it may limit your options in what property you can purchase. This is because some lenders require the new property to be of equal value or higher than the existing property.
Stuck with the same lender: Not everyone is happy with their existing mortgage, and moving your loan means you’re locked into it. This means if there are more competitive or suitable options on the market, you won’t be able to take advantage of it. It also often means you won’t be able to switch from a basic to professional loan, or add more borrowers to the mortgage.
Unexpected admin: There’s often still some paperwork involved in moving your mortgage. You’ll likely still have to submit a partial application if not a full one. If you’re borrowing more money, you may also have to go through the usual mortgage application process anyway! So, make sure it’s actually going to save you time in the long run.
Complicated process: The loan portability process isn’t always a breeze and unfortunately, lenders often make mistakes with it. This is why it’s extremely important to work with an experienced mortgage broker who can help guide you through the process and ensure it all goes off without a hitch.
So, you’ve decided that porting your loan is the right choice for you? The good news is, there are a few things you can do to make the process more streamlined and stress-free. While these are general rules of thumb, it’s best to speak to your lender about their specific guidelines.
Avoid settling on different days: Some lenders have a rule that you need to do a simultaneous settlement – that is, the exchange and settlement happen on the same day. Be sure to check whether this is the case so you can make arrangements if necessary. Otherwise, the process can become messy and stressful
Avoid changing your loan amount: There are some lenders that will allow you to up the value of your loan, but this isn’t always the case. In this scenario, you would need to submit a new mortgage application to change your loan, which creates a lot of extra work for you
Avoid being unorganised: In order to ensure your loan transfer goes smoothly, it’s important to have all the necessary documentation at the ready. This includes both the Contract of Sale and Contract of Purchase, as well as valuation documents that show that the Loan To Value (LVR) ratio is still acceptable. You’ll also likely need new mortgage documents for your new property. It’s best to work with a trusted broker to ensure you’re providing all the correct documents in a timely manner.
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As mentioned, different financial institutions have different requirements, guidelines and policies around loan portability. These can also be called multiple things, such as ‘portable home loan’ or ‘taking your home loan with you’ or ‘changing the security on your loan’ – so be sure to get your head around the lingo so you know what to look for.
While the best way to get the most recent information is to contact the lender (or have a broker to do so on your behalf), here is a rundown on where some of Australia’s biggest banks stand on this feature.
Westpac home loans have two different loan portability options. If you’re settling on your existing property at the same time as buying the new one, you can do a time settlement. This allows you to buy and sell at the same time. If you’re holding off on purchasing, either because you’re still looking for your new home or haven’t settled yet, you can do a deferred purchase settlement. This gives you six months to settle on your new property, and allows you to use your term deposit as security on your loan instead
NAB offers mortgages called bridging loans that allow you to buy and sell at the same time. This ‘bridges the gap’ by providing you with the funds you need to buy your new home before you’ve sold your current property. You would then need to pay your original home loan and bridging finance gap at the same time. You are required to show evidence that you can repay the bridging finance gap, and pay it off within 12 months.
Macquarie Bank’s website states that you can substitute the security on your home loan and switch to a fixed or variable interest rate, but that it’s subject to approval. It also says that you can release or sell a security on your mortgage by requesting a partial discharge. They suggest contacting customer service to request any of these changes.
CommBank’s website states you may be able to keep your existing home loan if you’re selling your existing property and purchasing a new one. However, it notes that this is subject to credit approval (suggesting there may be a re-application process) and that to check your eligibility you should contact one of their Home Lending Specialists via phone, or visit your nearest branch.
ANZ offers a couple of options to assist in selling your current property and buying a new one. Like Commonwealth Bank, they have bridging loan that allows you to purchase your new property before you sell your existing one. You then have six months to repay this, or 12 months if you’re building a new home. Their other options include supplementary or loans or redrawing on your current loan.
At the end of the day, porting your loan can be a convenient and cost-effective alternative to refinancing. If you’re looking for your first mortgage, it’s worth asking lenders whether they have this feature. Even if you don’t end up never using it, it’s a relief to know you have the option should you ever need it. After all, life is full of change and unexpected surprises and you never know when your living circumstances might change in the future.
If you already have a home and are looking to sell it and buy another? You’re now armed with the knowledge to help you figure out whether you should use this feature or not. However, it can still be worth consulting with an experienced broker, to ensure you won’t be financially better off switching to another lender. At eChoice Australia, our home loan experts have access to hundreds of mortgage packages to help you compare.
Words by Emma Norris
Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future.