Home Loan Portability – What is it?
Moving to a new house doesn’t necessarily mean you need a new loan. Consider getting a portable home loan option to help you save on any future upfront costs
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Loan portability is usually standard on all home loans, which means that if you choose to move houses and you like your current home loan, you can take your loan with you. Essentially you can transfer your existing loan to another property without having to go through the process of refinancing, so long as your new property is within the parameters set by your lender. Refinancing your loan involves time and expensive exit fees, so consider whether the feature of a portable loan would suit your financial and personal situation better.
What is loan portability?
Loan portability is a feature offered on many loans which allows you to keep your loan when moving to a new property, saving you the hassle of refinancing. Usually the term of a regular loan is between 25 and 30 years, so it is very common for people to move houses while they are still paying off a loan. Because moving is becoming more and more common, loan portability is offered with many loans meaning you can move the loan with you. Loan portability saves you the time and cost associated with closing off one loan and applying for a new loan.
What are the types of loan portability features?
Generally there is only one type of loan portability feature, but your lender may have different rules and parameters in place to determine whether you can or can’t use this feature. Before committing to anything, it’s important to check what these parameters are with your lender to save any surprises later.
How does loan portability work?
When you apply for a home loan you have to pay upfront costs to secure it. These costs can be very expensive and can increase the overall amount you spend on the loan. Because of the extent of these costs, homeowners want to protect themselves from having to pay it again by getting ‘portability features’ within their loans that allow them to transfer the loan to a new property if they decide to move, helping them avoid fees in the future.
The loan portability process - James and his flexible bank
James wants to sell his property before he buys another. His current home loan has a portability feature, saving him the cost and inconvenience of obtaining another loan. He will keep his existing account number and details - and he also has the option of switching his loan from a fixed to a variable or add more funds when he moves into the new property. To port his loan, he can either call his lender, apply online or go into a branch. His lender informs him that there may a number of fees he needs to pay such as:
- Stamp duty
- Legal, setup and utility costs
- Loan portability fees
- Agent fees
Pros and cons of loan portability
One of the main benefits of loan portability is that it will help you save money. This section of the article will explain how loan portability can help you save;
- Establishment fees. When you apply for a loan you will have to pay establishment fees. Depending on the provider, these fees can be over $1000. By transferring your old loan to the new house you will avoid paying these fees.
- Exit fees. When you leave a loan you will usually have to pay exit fees. The exact amount of these fees will vary depending on the provider, however they can be quite expensive. By transferring your loan to the new house you’ll avoid paying these fees.
- Some restrictions. While loan portability is a great way to save time and money it’s important to know whether there are any restrictions when using this feature. Generally, there are no restrictions on the transfer other than the fact you won’t be able to change the loan structure. This will include the number of borrowers and the interest rate. You won’t have to sign a new contact but if you’re borrowing a different amount of money a variation may have to be signed.
- Loan portability fee. Most providers charge you a fee to transfer a loan - around a couple of hundred dollars. Usually, this amount will not change even if you are transferring over a large amount of money.
Loan portability: Things to avoid
There’s a few rules you need to follow before transferring your loan. It’s best to confirm these before doing so with your lender as these are general guidelines:
- Settlement on different days. One of the general rules when using loan portability features is that exchange and settlement for both properties need to occur on the same day. However, this stressful rule varies from lender to lender so confirm this first.
- Changing loan amounts. The loan amounts for the new property cannot change, so if you need extra funds for the new house you will need to make a new home loan application. Some lenders will let you ‘top up’ your loan, so again remember to check with your lender first.
- Lacking documentation. Remember to provide evidence to show that you’re moving places. Documents to include are the Contract of Sale and the Contract of Purchase. Valuation documents must also be shown as acceptable security and comply within the Loan to Value (LVR) ratio. New mortgage documents will also need to be issued with the details of the new property.
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