How home loan portability works

• A jargon-free explainer on the home loan portability feature.
• Learn what happens to your home loan if you decide to move homes during the loan term.
• Understand the difference between mortgage porting, simultaneous settlement and refinancing, so that you can make an informed choice.

When you take out a mortgage to purchase a home, you’ll most likely be offered a term of 25 to 30 years to repay the loan. However, a long financial commitment doesn’t mean you have to stay in the same house for over two decades.

By using a mortgage porting option you can literally ‘move’ your mortgage with you, to seamlessly sell your current home and purchase a new one. This is how it works.

What is loan portability?

Home loan portability is a mortgage feature offered by some lenders, allowing you to transfer your current home loan to a new property. Instead of applying for a new home loan, you can use loan porting to switch the property on which your home loan is secured. This saves you the time and cost involved in closing one loan and setting up another. It also means you can continue using the features attached to your mortgage, such as a redraw facility or an offset account.

How does mortgage porting work?

Porting your home loan allows you to transfer your existing mortgage to the new property, including the outstanding balance, remaining term, interest rate, and other attached features. To understand how home loan porting works, let’s compare it with a simple example of utilities – say, your internet connection.

When you shift your residence, you have the option of transferring your internet connection to your new home. If you exercise this option, your service provider and monthly payments will remain the same, but the address on your bill would change. While you might be charged a small fee to cover the costs of transferring the connection, it will save you the hassle of applying for a new connection and searching for another plan.

Home loan porting works in a similar manner. You simply switch to a new property, but your user information, loan account, loan balance, and package interest rate and features, largely remain the same.

It’s worth noting that loan porting only allows you to transfer your current home loan to a new property, including the balance and ongoing interest rate. If you need more money to purchase the new property than you’ve already borrowed, you’ll either have to refinance or apply for a top-up.

Compare a range of loan refinance options.

Requirements

While it’s easy to understand how home loan porting works with the example of transferring a utility connection, it generally requires more than a phone call to transfer your home loan to another property.

For instance, it’s usually necessary for you to sell your existing property before buying a new place. While all lenders may not ask for same-day settlement for porting, they might ask you to provide the Contract of Sale for both the properties to reduce their risk.

The lender is also likely to undertake a valuation of both properties before approving your porting request, a requirement which can cost you up to $600. You’ll also have to pay Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80% of the new property price. This is irrespective of whether you had paid LMI before, at the time of taking out the original mortgage, because your new loan-to-value ratio (LVR) is higher than 80%.

Costs

Loan porting is a convenient option when you’re shifting homes. However, even though it saves you the cost of setting up a new loan, you’re still required to pay a small fee of about $200 to transfer your mortgage. You’ll also pay transfer duty in your state and other additional costs associated with purchasing a property, such as legal costs.

Depending on the sale proceeds of your old home, you may not have enough cash on hand to cover these costs, so it’s worth crunching the numbers in advance to avoid getting disappointed later.

Pros and cons

Porting your mortgage could be a convenient alternative to refinancing. However, despite the potential savings, porting may not be the right choice for everyone.

For instance, you might be eligible for a lower rate home loan, but porting your existing rate means you’ll continue repaying your mortgage at a higher rate. On the other hand, refinancing your loan to a lower rate could help you save money in interest. But if you refinance to a fresh 30-year term, you’re effectively spreading your debt over a longer period and may end up paying more interest in total despite a lower interest rate. Therefore it’s worth understanding the pros and cons of loan portability to make an informed decision.

Porting vs simultaneous settlement

A simultaneous settlement refers to an arrangement where the settlement of the sale of your current home and the purchase of your new home happen at the same time. The main advantage of a simultaneous settlement is cost savings, by avoiding bridging finance and helping you move into your new home quickly.

If you buy a new property without selling your current home, you’ll most likely require a bridging loan to cover the cost of the new house. While this can help you purchase the new property quickly, it also adds to your expenses, as bridging loans are usually charged at a higher interest rate. They also come with a time limit of up to one year, and you may feel pressured to sell your home within this period.

By orchestrating a simultaneous settlement, you eliminate the gap between sale and purchase. The sale proceeds of your old home are directly applied towards paying off your mortgage, and the leftover money is used to reduce the mortgage on your new property.

Overall, simultaneous settlement may be a practical option to save costs while shifting. But it’s also a complicated exercise that requires immense planning to orchestrate. As the settlement is dependent on two simultaneous transactions, a problem at either end could lead to delays, potential penalty fees and even the loss of the deposit on your new home in some cases.

Conversely, you may consider the easier alternative of home loan porting (if it’s available) to simply transfer your existing loan to the new property. While some lenders may still have a same-time settlement requirement, there are others who’ll accept your application with only Contracts of Sale for both the properties, and give you some time to settle both transactions.

The bottom line

Having the home loan portability feature in your home loan can make it easier for you to switch homes during the loan term by carrying forward the same mortgage with you. However, whether you prefer to transfer your loan or refinance with another lender depends on your personal situation.

Generally, if you’re happy with your current lender and ongoing interest rate, loan portability could be an option worth considering when moving homes. But if you’re dissatisfied with your lender or think you might be eligible for a lower rate or a better deal overall, refinancing may be a better option for you.