When purchasing and selling properties, you can transfer your existing home loan to a new property without incurring additional expenses or dealing with extensive paperwork required for setting up an entirely new loan. Let’s dive into the intricacies of home loan portability.
What is Home Loan Portability?
Loan portability refers to transferring your existing home loan to a new property, including its balance, interest rate, and associated features. Essentially, it allows you to switch the collateral for your mortgage from your old property to a new one.
This process eliminates the need to apply for a brand-new home loan and the associated upfront fees and paperwork. Moreover, by opting for loan portability, you can retain the advantageous features of your current mortgage, such as an offset account or other benefits.
How Does it Work?
A loan portability is like transferring utilities such as internet or electricity when moving to a new home. The terms and conditions of your existing loan can be maintained, with the only change being the property address.
Let’s consider an example to illustrate the concept of loan portability:
Assume you currently own a home valued at $780,000 with an outstanding home loan balance of $600,000. The original loan term was 30 years, but you have already been repaying the loan for three years, leaving 27 years remaining.
Now, if you decide to sell this property, you manage to secure a sale price of $780,000. However, after factoring in real estate agent commissions and selling costs, you receive proceeds of $750,000.
Instead of paying off your existing home loan and applying for a new mortgage, you transfer your current loan to your new property. The new property carries a purchase price of $800,000. Fortunately, you have sufficient funds to cover the $200,000 shortfall between the loan value ($600,000) and the purchase price ($800,000), thanks to the $150,000 profit from the sale of your previous property and your savings account. Using loan portability, you can seamlessly transfer your existing mortgage to the new property, avoiding needing a new loan application and associated costs.
Who Can Benefit from a Home Loan Portability?
Loan portability can be advantageous for individuals simultaneously selling their current property and purchasing a new one. Here are some scenarios where a portable loan might be beneficial:
Homeowners Planning to Upgrade or Downsize
Loan portability can simplify the transition if you are selling your current property to buy a new one. It allows you to transfer your existing loan to the new property, preserving your loan terms and avoiding applying for a new loan. This is particularly useful when retaining the facilities associated with your current loans, such as ATM cards, online banking accounts, and chequebooks.
Relocating Individuals or Families
Loan portability can be advantageous if you are moving to a new location due to work, lifestyle changes, or personal reasons. It eliminates the need to go through the process of refinancing or securing a new loan, saving you time and potentially reducing costs associated with establishing a new loan.
Investors with Multiple Properties
Real estate investors who own multiple properties may find loan portability beneficial when they sell one property and purchase another. By transferring their existing loan, they can streamline the process and maintain the loan terms and features they already have.
Cost-Conscious Borrowers
Loan portability can help borrowers save money by avoiding additional loan establishment or application fees. Instead of paying these fees associated with a new loan, borrowers can opt for loan portability to minimize upfront expenses.
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