“What will happen to my home loan?” “Can I move it to my next property?” These are probably the questions running through your mind when you’re thinking about selling your current home or buying a new one. This is where the concept of home loan portability comes in, which is also known as “substitution of security” or “security swap.”
What is Home Loan Portability and How Does it Work?
Home loan portability is a concept that allows you to transfer your existing mortgage from one property to another. Essentially, you “port” your current loan to your new home. We commonly know it with other terms also, “substitution of security” or “security swap.”
That’s because a loan is usually secured against property. And when you port your loan, you are essentially swapping the security from your old property to the new one while keeping the underlying loan intact. While the lender’s interest? It remains protected, but your mortgage moves with you.
This means you can keep your existing interest rate, loan term, and loan features, such as offset accounts or redraw facilities, while moving to a new property. For many homeowners in Australia, this can save significant money, especially if they have a fixed-rate home loan.
Like in 2019–20, 1.14 million households (12% of all households) moved at least once in the previous 12 months. And among them, most of them were the younger population, with 52% of households aged 15–24 and 26% aged 25–34, spending less than a year in their current home.
Ways to Use the Loan Portability Feature
Generally, there are 2 ways in which you can use this feature, like
1. Same-Time Settlement
This is the most common and straightforward option when buying and selling at the same time. It allows for a smooth substitution of security, making the process seamless.
How it works
- Your current property remains as security for your loan until settlement.
- The sale and purchase dates of your old and new homes are aligned.
- On settlement day, the lender simply transfers the loan security from your old property to your new one.
To apply for this, you just need to follow these steps below.
- Apply for loan portability before selling or buying.
- Provide your lender with the sales contract for the new property.
- Continue making your repayments as usual during the process.
2. Deferred Settlement
Then there is deferred settlement, which works best if you’ve already sold your property but haven’t yet purchased or settled on your new one.
How it works
- Your lender places the sale proceeds of your current property into a term deposit once you sell it.
- Then that deposit acts as temporary security against your home loan for up to 6 months or 3 months, depending on the lender’s conditions.
- And when your new property gets ready, the team deposit is closed, and the new home takes over as security.
Now, just like the above one, you can apply for this by using these steps below.
- Apply for portability before selling your current property.
- Then, once you found the new home, provide the purchase contract to your lender.
- Continue your home loan repayments as they are while keeping your loan in good condition.
Benefits of Home Loan Portability
Not just one, there are several benefits that make home loan portability a viable option, like
Keep Your Existing Interest Rate
If you have a fixed-rate loan, porting allows you to retain your current rate. With interest rates fluctuating, this can save thousands in interest over the life of the loan.
For example, a homeowner on a $500,000 fixed-rate loan at 5% could avoid paying an extra $5,000–$10,000. But only if market rates rise before they buy their next home.
Maintain Your Loan Features
Your existing home loan might include features like offset accounts, redraw facilities, debit cards, or online banking setups. But if you port all of them, you won’t lose any convenience or functionality when moving.
Easier Process Than Refinancing
Refinancing can take time and be stressful. You must re-verify income, pass credit checks, and complete many forms. But Loan portability preserves most of your existing loan structure.
This means you need to work with fewer forms, with less hassle with your lender while completing your porting process.
Save Upfront Costs on a New Loan
Applying for a completely new home loan also comes with several upfront costs, including application fees, valuation fees, and stamp duty-like charges.
But if you go with loan portability, the bank will essentially replace your old property with a new security. So, many of your upfront costs will be removed while saving you more funds for other financial activities.
Avoid Exit Costs on Fixed-Rate Loans
Meanwhile, if your current loan is fixed-rate, breaking it early usually comes with significant penalties. But with loan portability? You can transfer it to your new property without paying these fees.
That means more savings and a sense of confidence when upgrading, downsizing, or relocating.
Availability of Flexible Options
You can also access additional flexible options. Why? Because some lenders offer them within loan portability. For example, you may be able to switch from a variable to a fixed interest rate or vice versa when moving to your new property.
But make sure to check with your lender to see which options apply to your specific loan for better outcomes.
Who Can Benefit from Home Loan Portability?
Loan portability is a practical option for almost every group of homebuyers, like
- Upgraders- Homeowners looking to move to a larger property can keep their current loan and rate.
- Downsizers- Retirees or empty nesters can transfer their mortgage to a smaller home without paying exit penalties.
- Relocators- People moving for work or personal reasons can port their loan to a new property and retain loan features like offset accounts or redraw facilities.
Limitations of Home Loan Portability
Though home loan portability has many benefits, it has some limitations too, such as
Every Loan Is Not Portable
Certain lenders limit the loans that are eligible for portability. Like fixed-rate, investment, or special-condition loans, they may not qualify. That means you may still need to refinance if your loan doesn’t meet the lender’s portability criteria, creating more worries.
May Require Additional Lender Approval
Regardless of the portability of your loan, the lender may occasionally reevaluate your financial status and the new property. Under this, you will undergo income verification, credit checks, and property valuation. That’s because approval isn’t automatic.
Potential Loan Limitations
The new property must meet the lender’s criteria for size, location, and value. And due to this, sometimes you may need to adjust your loan amount or make a partial new loan if your new property costs more.
Furthermore, some options may not be available on the new property. For example, switching between variable and fixed rates may have restrictions based on the lender’s terms.
Timing Concerns
If you’re porting a loan, you must sell your old home and buy a new one on the same day. This is essential in porting a home loan. Otherwise, if there is any delay in selling or buying, it can complicate the process for you, subject to the lender’s terms and conditions.
How to Apply for Home Loan Portability (Step-By-Step)
Applying for a home loan is simpler than starting a completely new home, and you can do that by following these steps-
Step 1 : Contact your lender early
Reach out to your bank or lender as soon as you know you’re moving. That’s because only by this can they confirm whether your loan is eligible and explain any conditions.
Step 2: Provide details of your new property.
Then submit information about the property you’re buying, including the address, purchase price, and settlement date. Lender will use this information to assess the new security and give you the final response.
Step 3: Verify Your Final Position
In this phase, even though you’re porting your loan, lenders will usually review your income, expenses, and credit history. So, verify all your documents before applying for porting.
Step 4: Arrange Simultaneous Settlement
For most lenders, your old home sale and new home purchase need to settle on the same day. That’s because it allows them to swap the property used as security without breaking your loan. In some cases, a short gap may be allowed, but it depends on your bank’s policy.
Step 5: Pay for Applicable Fees
Although loan portability is a far more feasible option than refinancing, some banks do charge a small fee for it, like $300/security. Therefore, always confirm any applicable fees upfront to prevent unexpected costs from affecting your budget before settlement.
Step 6: Final Approval and Loan Transfer
Now that your lender confirms all your details about the property, financial documents and fees, you’ll get the final approval. And, you can transfer your old property and register your new property as security. Meanwhile, your home loan will continue as usual, only the property will change.
Key Considerations For Home Loan Portability
Before you apply to transfer your loan from one property to another, you must remember the following points.
Loan Details Remain Unchanged
Your loan account number, interest rate, and repayment arrangement everything will remain the same during portability. That means you cannot change the loan names or any other details. For example, you will not be able to add or remove borrowers or introduce a new guarantor.
Property Eligibility
The new property must meet your lender’s security standards. That’s because, in most cases, the lender can arrange a valuation to confirm it meets the required value and risk criteria.
Product Availability
Most home and investment loan products allow portability, but it’s not universal. Therefore, check whether your loan product is eligible before making plans or not.
Credit Review May Apply
Even though portability doesn’t require a new home loan application, your credit may be reviewed again to confirm its eligibility as per their standards. In such a case, you might be asked to provide your financial details again to prove your capacity to repay the loan.
New Application in Some Cases
You may need to apply for a new home loan application in case you need to borrow extra funds or change the ownership structure of the new property. That’s because portability won’t be enough.
Approval Takes Time
Finally, lenders can decline portability requests if the new property doesn’t meet their lending criteria or security requirements at the time. That’s because it’s not automatic and takes time. Your credit score can be reviewed again with everything aligned with it.
How Much Will Loan Portability Cost?
There is no doubt that home loan portability is a good option for borrowers. However, it also comes with its own set of charges you need to bear. Like, you may need to pay a flat portability fee of around $200 to $300 regardless of your loan size.
On top of that, standard charges for buying a property will also apply. You will need to pay stamp duty, conveyancing or solicitor’s fees, and settlement costs.
Additionally, in some cases, lenders also require a valuation on the new property, which can add another $300–$600. Some mortgage brokers, however, may also be able to secure free upfront valuations for you, a small but useful saving.
So, before you proceed, review all these costs to avoid a significant impact on your overall savings.
Alternatives To Home Loan Portability
If you don’t want to bear the concerns associated with loan portability, you can also consider the alternatives below.
1. Home Loan Balance Transfer
This is simply the refinancing to another lender. In this, instead of porting your existing home loan to a new property with the same lender. You can refinance by transferring your outstanding loan to a different lender for better interest rates or loan features.
2. Security Swap Without Loan Change
You can also consider a security swap because some lenders in Australia offer this, allowing you to maintain your existing loan account while changing the property that secures the loan.
It is similar to the portability option, though it can have different eligibility and terms depending on your lender. By using this, you can avoid full refinancing while keeping your current loan terms intact.
3. Bridging Loan With Portability
If you are buying a new home before selling your current one, a bridging loan can be used to bridge the financial gap. But still, you can later port your home loan to the new property once the sale of the old property is complete.
Thus, you can ease your cash flow and timing mismatches during the property transition while also complementing the portability option with this.
4. Renegotiating Loan Terms with Your Lender
You can go for negotiating terms too with your lender before choosing refinancing or porting. That’s because there might be a chance you will get better loan terms without much paperwork or fees for changing loans.
5. Simultaneous Settlement
Alternatively, if you have a variable interest rate rather than a fixed rate, it may be more advantageous to take out a completely new loan. This approach allows you to easily pay off your existing loan in full without any concerns.
Final Words
Undoubtedly, loan portability is one of the more practical options when you want flexibility without the hassle of starting a whole new loan process. It allows you to keep your existing loan terms, avoid early repayment costs, and move seamlessly from one property to another.
But it is not right for everyone. It has specific flaws, including costs, eligibility criteria, and lender requirements. As for its application process, you need to follow simple steps from contacting your lender early to final approval and loan transfer. So, before you decide to use this feature, consider all these aspects.
For more details, reach out to us at Nfinity Financials or call us at 1300 GET LOAN, 0456 456 267.
FAQs
Some more answers to your commonly asked questions about loan portability-
Q1. Can I keep my existing home loan when buying a new property?
Yes, through loan portability, you can keep your current home loan and transfer it to your new property, subject to lender approval.
Q2. Can I transfer my home loan to a family member?
No, loan portability doesn’t allow borrower changes. You cannot add, remove, or transfer the loan to family members or guarantors.
Q3. Is loan portability available with all lenders?
Not all lenders offer portability. Its availability depends on loan product type and lender policy, so always confirm with your provider first.
Q4. How long does it take to transfer ownership or port a loan?
Loan portability usually takes two to six weeks, depending on property valuation, settlement coordination, and lender processing times.
Q5. Can I transfer any type of property?
No, the new property must meet the lender’s security requirements; typically residential, with restrictions on rural, commercial, or unusual properties.
