Suppose you’re a homeowner and plan to relocate – what do you do about your current mortgage? Well, you may be able to carry over your existing mortgage in a process called “mortgage porting.”
While it’s certainly possible to take out a new mortgage, there are costs you need to be aware of when doing this. This is exactly why people try to find out if they can port their old mortgage to a new property.
This article explores how to port your mortgage and the pros and cons of doing so.
What does it mean to port your mortgage?
‘Porting your mortgage’ means transferring your current mortgage to a new property. It’s a strategy people use to save money and avoid taking out a new mortgage deal. For example, you might do this if you’re on a good mortgage rate and don’t want to give it up when you move to a new property.
Is porting your mortgage a good idea?
If you’re considering porting your mortgage, it’s worth weighing up the options first. Here are some of the reasons you may not want to do so:
Advantages of porting a mortgage:
- No exit fees – This is the biggest reason. Most people want to avoid hefty ‘early repayment’ costs and associated exit fees. Porting your mortgage allows you to avoid these unpleasant charges.
- Keep low-interest rates – Your mortgage product may have a low interest rate that would be hard to find elsewhere. If this is the case, porting your mortgage can be a great way to save money because it allows you to stay on the same rate.
- Avoid the full mortgage application process – Unlike getting a new mortgage, it’s fairly straightforward to port your mortgage to a new property. This will likely save you time, money and stress along the way.
Disadvantages of porting a mortgage:
- Re-applying for your mortgage (and possibly being rejected) – Unfortunately, when you choose to port your mortgage, you must go through a re-application process with your lender. However, because you are essentially applying again – you may not qualify for the mortgage if your financial circumstances have changed.At the same time, the criteria are constantly changing on the mortgage lender’s side. They may now offer (e.g.) higher interest rates or additional fees not present in your original deal. This means it may be more cost (and hassle) than it’s worth to transfer your mortgage.
- Limits on borrowing – When moving home, you might be purchasing a more expensive home. If so, your current mortgage is unlikely to cover the total cost. If this is the case, you may need to borrow additional money from the bank. Unfortunately, your lender may decide not to lend you any more if you are already close to your borrowing limit.
- Dealing with two loans – This can be a real headache for buyers, even if the mortgage provider agrees to lend them more money. That’s because they insist that the new funds you’re borrowing go under a new mortgage product in addition to your old one. There are numerous problems managing two mortgage products, not least because they may expire at different times or be charged at different rates.
- Poor interest rates – When you port your mortgage, you are tied to your current lender. This means that you’ll be constrained by their interest rates – even if other lenders provide much better products. So you may pay more than you need to.
How does porting your mortgage work?
There are several steps you’ll need to take to port your mortgage:
1 Check viability
It’s essential to look at your mortgage deal (and your lender’s criteria) before you consider porting your mortgage. This allows you to see if there will likely be problems further down the line, and whether transferring your mortgage is worthwhile.
2 Ask your lender
Next, you’ll need to speak to your lender about transferring your mortgage and the conditions for doing so. Some lenders may not allow you to transfer your mortgage at all, or may have restrictions on certain products.
3 Re-apply for your mortgage (to port it)
Then, you must apply for your mortgage again to meet the portability criteria. This can be challenging, especially if your circumstances (or the lender’s standards) have changed. If you don’t meet the criteria, then you won’t be able to port your mortgage.
When is it not a good idea to port my mortgage?
There are three main reasons why it might not be worth porting your mortgage at all:
- If you are not liable for early repayment fees – One of the main reasons people choose to port their mortgage is early repayment costs. In other words, they must pay a charge to exit their mortgage product early. However, you may not be subject to these costs if you’ve had your mortgage for a while (or have a low mortgage balance). If so, there’s no point in transferring your mortgage. Instead, you should explore the market for a new one.
- If your circumstances have changed – If your circumstances have worsened and you can’t borrow more money, it’s best not to port your mortgage. The lending criteria can often be more strict, and you may have to pay more.
- If your current product is due to expire – If your mortgage product has a few months before it expires, it’s not worth trying to port it. Unless you’re in a real hurry and can’t wait, it is better to stick it out for a few months and then look for a brand-new product once your current deal expires.
How long does it take to port a mortgage?
This depends upon how long your lender takes to assess your situation. If they allow you to port your mortgage, it can take 1-3 months to complete the purchase of your new property and have your mortgage accepted.
What if I can’t port my mortgage?
Unfortunately, if you can’t port your mortgage, then you’ll be liable to early repayment costs. If you’re prepared to pay this, then you can choose to do so. Or if not, you can wait until your current mortgage product expires – and then buy a home under a new mortgage.
If you can port your mortgage, should you?
This all depends on the costs involved. You’ll have to weigh up the exit fees and early repayment costs against getting a new mortgage – for example, examining any additional cost incurred by different interest rates and arrangement fees.
If the costs of a new mortgage are higher, then it makes sense to port it to a new property and avoid the hassle of selecting a new mortgage deal.
Can you increase the amount of money you borrow when porting a mortgage?
Unless you’re downsizing, most people pay more for their next property. And if this is the case, it may mean you need to borrow more money from the bank.
If your bank won’t let you do this, then you’ll have to find a new mortgage provider (or not sell for now). However, even if they’re willing to lend you more money, they often do this under a separate ‘top-up’ mortgage. That means you’ll need to juggle two mortgages, possibly with different interest rates, and likely with different expiration dates too.
Understandably, most people try to avoid this because it increases the complexity of their financial situation.
Can you port your mortgage to a cheaper house?
It’s easier to port your mortgage if you move to a smaller, cheaper property. However, lenders may not allow it in some circumstances.
That’s because your loan-to-value ratio (LTV) increases with a lower-value property. For example, let’s say you bought your home for £250,000 with a loan of £200,000 and £50,000 of your own money. That would give you an LTV of 80%. However, if you downsized to a £225,000 home, your LTV would increase to nearly 89%. Therefore, the lender may not be willing to lend you as much money in proportion to the value of the new property.
For this reason, you’ll need to check the lending criteria very carefully to see if you can downsize.
What to consider when porting your mortgage
So, what’s next if you’ve decided to port your mortgage? There are several points you’ll need to consider:
Will I pass affordability checks?
As with any mortgage, you must pass the lender’s criteria before approval. This remains the case when you port your mortgage, and some lenders may have stricter standards when you opt for a mortgage transfer.
Your lender will be able to look at your mortgage repayment history, and if they can see you’ve made your past payments on time, have a stable job, have minimal debt (etc.), then they may allow you to borrow more than you think. However, this is not guaranteed.
Do I have a good credit score?
Your lender will always explore your credit history to check your eligibility for a ported mortgage. If you’ve missed mortgage payments or bills, this will be visible to them and they may not allow you to proceed.
Will the new property work with a ported mortgage?
Lenders don’t look favourably on some properties and may not be willing to port your mortgage. For example, if you’re considering buying a flat above a shop, the lender may say no.
If you’re considering porting your mortgage, there’s much to weigh up.
Depending upon the situation, it may be financially sensible and cost you less. It’s well worth talking to a mortgage broker to help you make the best decision and help you understand the options available.