The Complete Guide on Mortgage for Moving Home
While moving home you have two options: whether to port your existing mortgage or take out a new mortgage. The choice is completely yours. Both options work differently and have a different impact on your budget.
Before you make up your mind, make sure that you have compared revised interest rates. It is important that you get lower-interest-rate deal while applying for a mortgage for moving home.
What is porting a mortgage and how does it work?
Porting a mortgage means transferring your existing mortgage to a new property. If you satisfy all conditions of the lender, you will get it at lower interest rates. Porting is a good idea when your existing deal is affordable and it is no longer available. In other words, porting means you are taking out a new mortgage at existing interest rates and terms and conditions. Further, you do not have to bear the risk of paying a prepayment penalty.
When you move home, you have to reapply for a mortgage. The lender will assess your financial capacity, property value and your affordability before approving for a new mortgage. You must note that existing interest rates and terms and conditions are ported, not the mortgage.
As you sell your existing house, the old mortgage is paid off in full, and the lender will approve your new mortgage. The existing rate will be applicable to the amount that you owed previously and new rates will be levied for any additional amount. However, a lender may deny you lending additional cash if you have already borrowed the maximum limit.
Can a Lender Deny Porting?
Though porting is an option and lenders prefer allowing for it, you can be turned down because of following reasons:
- You do not meet the criteria
Since you are applying for a mortgage for your new property, the lender will assess your financial condition. Your employment status may have changed or debt may have increased. The lender determines your affordability before approving the porting of a mortgage and they are likely to deny your application if your financial condition is no longer suitable.
- The lender does not want you as a customer any more
If you have not made all payments of your mortgage on time and it is likely to stretch over the retirement age, the lender will consider you as a risky borrower and may deny you lending money. They may cast aside your application even if your financial circumstances have not changed since you took out your existing mortgage.
What if you fail to port your mortgage?
If your lender denies porting your existing mortgage, you will have to redeem the existing mortgage and take out a new one. You will end up paying thousands of pounds of fees if the introductory period is yet to be expired. You are likely to pay 1 to 5% of outstanding debt depending on the introductory period you have left. If you redeem your mortgage after the introductory period, you will not pay off the prepayment penalty. However, you must check for it in the contract.
You will also have to pay off existing fees. it can be a few hundred pounds. Along with exit fees, you will also have to pay valuation fees for your new mortgage.
What if you are moving to a cheaper house?
Porting is a good option when you are moving to a cheaper house and you are presently on a lower-interest-rate deal. It means you will have to borrow less money. Bear in mind that the lender will look over your repayment capacity, so make sure that it has not become worse.
You will have no problem in satisfying the lender’s criteria as long as your financial circumstances have not changed much since you took out your previous mortgage and your repayment size will trim down. However, the length of your new mortgage and interest rates will be same.
If your mortgage has an early repayment charge, it will be between 1 to 5%. The charge will be levied on the difference between both mortgages. You can also use your equity while taking out a new mortgage from Shine Mortgages. It will reduce your loan-to-value. If you do not want to use it, you will get it as soon as the sale completes.
Alternatives to porting
If porting is not the option, you need to find another mortgage. Ask your current lender if they can offer deals with lower interest rates. At the same time, compare those deals with market rates. It is imperative to make sure that you get the right deal.
The bottom line
If you want to port your mortgage, make sure that your financial circumstances have not changed since you applied for your existing mortgage. A good credit score and repayment potential make easier to meet the lending criteria.