What Is Home Loan Portability?

June 21, 2018

Nothing lasts forever. In fact, most things in life aren’t going to last for the next 20 or 30 years, or however long your mortgage term is. Which is why home loan portability is such an important feature. It’s something you’ll probably end up using at some point.

Let’s face it, life isn’t going to revolve around your mortgage. A new job. Family changes. A desire to relocate to another city. Or, simply being ready to move on from the home you once fell in love with. All of these factors could mean you end up moving house, possibly years sooner than you had expected when you took out your loan.

It’s actually more common to move around every ten years or so than it is to stay put. According to the Australian Bureau of Statistics, typically around one-quarter of Australian adults, both renters and homeowners combined, are in the same house for over 15 years. 30% stay in the same home for five to 14 years and 43% have moved by the time five years are up. Looking purely at homeownership, the RBA estimates the average holding period of a property to be about 17 years.

Which means, chances are, when you are moving, you still have a mortgage to pay off. The typical Australian mortgage term is set for either 25 or 30 years. To switch to a new one to purchase a new house, you’ll have to refinance your home loan – unless you have loan portability.

This feature could save you thousands of dollars and a lot of time and effort when you have to move by allowing you to keep your current loan.

While refinancing can be a beneficial process when you want to invest in property, pay for a renovation, or save money; when in the midst of searching out a new place to call home and transitioning to your new location, the last thing you want to do is refinance.

Instead of hunting around for a new mortgage while you are hunting for your new house, you can use your current mortgage’s loan portability feature. Find out what loan portability is and how it can make your life a lot easier during a move.

How Loan Portability Works

Because more and more Australians are moving, whether for work, family reasons, or just to experience a new location, most home loans offered today include a portability feature. With home loan portability, you can keep your existing loan product and can continue making your mortgage repayments without skipping a beat when you move. Your lender will allow you to switch the security – your new house for the old one.

The Advantages of a Portable Loan

This isn’t just convenient. It will also take a lot of the stress out of the moving process altogether.

You’ll be able to keep the same accounts that are related to your mortgage, such as your associated ATM card and bank accounts. And, you’ll still have the same rates and features, which is a huge advantage if your original loan came with a low interest rate or if you currently are paying a fixed interest rate. Otherwise, you may have to pay penalties for closing your fixed interest loan to switch to a new one for the new house.

The best part of portability is, you won’t have to pay any loan establishment, exit, or application fees because you aren’t applying for a new loan product. You’re merely swapping securities. This could save you hundreds of dollars or more – which is money you can spend on moving costs, not refinancing.

Getting Loan Portability Right

But, there’s a catch. Depending on the rules of each lender involved, you may have to worry about getting the timing right for portability to work.

While advantageous, loan portability in action can be tricky to navigate. First, you’ll have to have both of your properties settle on the same day. This can be stressful and may require some planning and lots of communication with your loan vendor and purchaser. Not all lenders share this rule so make sure you verify.

Second, as you’re keeping the same loan – your loan amount won’t actually change. If you need more funds because your new property is more expensive, you’ll have to apply for another home loan. On the other hand, you may also be able to top off your current loan to make up for the difference. Check with your lender if this is an option.

You also may benefit from refinancing if you were thinking about it anyway. Experts recommend doing a home loan health check every year to make sure your mortgage is working for you. A lot of homeowners end up refinancing every three to seven years. If you could refinance to a cheaper rate, switch to a loan with better features, or you need to adjust your repayments, the term, or even the loan amount so you can take care of other financial goals, then refinancing could make more sense.

It all depends on your financial goals, as well as how your current loan compares to what you may be able to qualify for today.

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Portability or Refinancing?

The key to getting loan portability right is to find out the specifics of your loan portability feature. Make sure you are clear on the limitations, as well as the flexibility. You will also want to talk to your lender and to consider the help of your broker or another specialist to ensure everything goes smoothly. After all, that is what the loan portability feature is designed for – to make your mortgage one less thing to worry about when you move.

Then, take a look at your financial goals right now and assess your existing loan. Will it cover the purchase price of the home you want to move to or will you have to top it up? Could you save by refinancing to a lower interest rate?

If you are happy with your current loan and want to focus on the move, home loan portability could be a lifesaver. Just ensure you want to keep the loan you have now. If you aren’t sure, compare your mortgage with loans that are available on the market today and talk to a financial or mortgage specialist for help. Making the best decision for you in the long-run will give you the most peace of mind.

Written by Refinancing.com.au

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