The Pros and Cons of Loan Portability
A “portable” loan can be transferred from your current property to a new property. On the face of it, this sounds like a fantastic convenience – one less thing to worry about when selling the old house and buying a new one. However, “porting your loan” is not always as easy as it seems, and it might not even be the right option for your situation.
Here we look at the benefits and disadvantages of “porting your loan”:
The loan portability feature is convenient and cost-effective in many situations. It is extremely convenient if you have a simultaneous settlement – selling and buying on the same day – as your loan will automatically switch from one property to the other. As your home loan generally ties in with all your other banking needs, you also have the convenience of making the switch without having to rearranging all your banking.
If your home loan comes with a fixed rate, then you have a great head start with your new mortgage, as you can make some productive repayments before the loan term finishes.
Loan portability can come with a number of restrictions, that might limit your options for borrowing or even for purchasing the house of your choice. One potential disadvantage is that your lender might apply restrictions to the value of the properties you are selling and purchasing. In order to protect the value of their loan, a lender might insist that the new property must of equal or higher value than the previous one. This would be an issue if you are considering downsizing with your next property.
Some lenders expect you to reapply for the same loan, before they will sign off on the new property. This could lead to a number of complications, if your circumstances have changed – such as a shift in your employment – or if the lender’s criteria have changed.
If you need to borrow more money for the new property, your current lender might not agree to increase your loan. This could leave you in the
position of taking out a second loan product which might not have an
attractive interest rate.
If you need to borrow more money, you must go through the full mortgage application process anyway, so the loan portability won’t save you any time or effort. Also, there is a chance you could be locked into an unappealing interest rate by the time your second purchase comes around.
Before requesting loan portability as part of your loan package, it’s worth considering your future plans and whether you intend to upsize within the lifespan of the loan. If so, talk to a mortgage broker about whether the loan portability option will be a good fit for your personal needs. If you are ready to move into your second home and you are considering “porting” your loan,
ask a mortgage broker about any alternatives, to see if there are better options on the market.