If you’ve heard someone talking about porting their mortgage, you might have wondered what it meant. Put simply, it means that they ported, or carried, their existing mortgage deal from their old home to a new one.
The benefits of porting your mortgage
Porting your mortgage can be good because it means you stay with your existing lender, which in turn means you’ll almost certainly avoid early repayment fees. Your product stays the same, it just applies to a different property.
You’re also saved from the hassle of looking for new deals, comparing interest rates and (usually) a lot of paperwork as it’s already been done.
How does porting a mortgage work?
One thing to bear in mind before you make plans to port your home loan is that it’s the deal and the rate that is ported, not the loan. You will still have to apply for the new loan and your application will be affected by your repayment history, personal circumstances and your loan-to-value (LTV) ratio of the new property. If you’ve improved your LTV, made all your payments and had a few pay rises, you have more chance of approval than if you’re porting to a more expensive place with a few missed payments in the recent past.
In many ways, porting is like switching to a new deal as you’re essentially asking the lender to re-lend you the money to buy the new place.
However, it’s unlikely that your new property will cost the same amount as your original loan or your outstanding amount. You’ll either want to buy a cheaper or more expensive place.
Loan-to-value (LTV) is the amount you borrowed for your mortgage as a percentage of the original property purchase.
If you’re buying a more expensive place
If you’re moving to somewhere more expensive then you’ll probably need to borrow more money – known as topping up your mortgage. Very often, the extra amount is put onto a different product, which is almost always at a different rate, giving you two (at least) parts to your mortgage. This extra portion is usually more expensive as your total LTV is probably higher.
An example
You have £150,000 left on your current mortgage deal and your property is valued at £180,000, giving you £30,000 in equity.
You want to buy a property that’s worth £240,000, so your new mortgage amount will have to be £210,000, based on your current £150,000 and the extra £60,000 plus the £30,000 you have in equity.
If you’re buying a cheaper property
Even if you’re planning to port your deal to a cheaper property, you’ll still have to satisfy the product terms. Your LTV mustn’t exceed your current one, for example. It’s unlikely that you’ll be able to port the entire mortgage amount and asking to re-borrow a smaller amount might result in early repayment charges on the amount not being carried over.
An example
If your current mortgage is £150,000, your property is worth £200,000 and you’re planning to move to a new place that’s with £150,000, you’ll have to reduce the size of your mortgage.
The amount you sell your current home for will determine how much you reduce your home loan by as the sale will release some equity.
Your current mortgage balance is £150,000 and you have equity of £50,000 due to a valuation of £200,000. This means that when you sell you’ll have £50,000 to put towards the purchase of the £150,000 property. Therefore, you’ll need a mortgage of just £100,000.
Some lenders will see this change as an early repayment of £50,000 and will apply early repayment charges (ERC) on this amount, so always check before you make any definite moves.
Things to remember
Make sure your current mortgage is actually portable, as not all deals are.
Look at your circumstances – are you earning more? Have you gathered a lot of equity which could mean ERCs? Will you be approved for the port?
You will still have to pay for the legal fees and surveys for the move to the new home, even though you’re carrying your mortgage deal over.
