TM Finance Group Mortgage Broker, Kylie Donnelly explores and explains Portability…
The average Australian homeowner lives in their property 8 years before they purchase a new one, which is nearly a 3rd of the standard 30 year loan term.
In the past 12 months we have seen an increase in our clients taking up the option of portability to assist them through this process.
What’s portability?
This is a loan feature offered by some lenders that allows you to take your existing mortgage / loan with you to your new property. The loan remains but the security behind the loan is swapped out, or “ported” to the new property.
Why take up this option?
If you have a fixed rate you don’t have to payout your loan, this is beneficial in both respects if you are lucky enough to be on a low rate – you get to carry this over to your new property. No need to pay out the existing loan and obtain a new loan at the current market rate.
On the flip side of this, if a break cost was applicable to the fixed rate you can also avoid paying the break costs.
Lastly, circumstances change – particularly relating to income, employment status or borrowing capacity. Applying for a new loan may find you in a position where you don’t actually qualify, this could be due to bank policy, time in role, employment type, like full time to casual, wages to sub-contracting etc.
Because Portability involves a security-based assessment - not an income assessment you bypass the serviceability assessment.
What do I need to consider?
When looking to complete a portability you’ll need to factor in the following:
- Settlement dates: Need to be same day in most cases. Some lenders can complete a deferred portability, which means your existing home is sold first – the bank retains the sale proceeds to cover the loan i.e. cash in an account until the settlement for the purchase has gone through.
- If you buy before you sell – Portability isn’t applicable – rather bridging finance which is a didn’t policy and lender assessment.
- Acceptable Security offered – The new property needs to meet your lenders requirements regarding location and type. In most cases valuations are needed to confirm.
- Lending Value Ratio’s need to be acceptable. Generally, if the lending value exceeds 80% on the new property, lenders mortgage insurance will be required which will make you ineligible for portability. A Lending Value Ratio is generally acceptable under 80%
It’s a lot to take in, which is why it’s important for borrowers to speak to qualified brokers, who not only look at your immediate needs which are generally rate and fee driven but also your future plans and goals.
Here’s 2 examples where we have been able to help our clients this year with Portability:
1. Carolyn.
Carolyn had a second residence in regional Victoria. The house was a little small, so she brough another on an unconditional contract of sale. She had the first property on the market, but it hadn’t sold. She was fortunate that could pay cash for the new property, and she had 60 days to settle.
She wanted to retain her loan at ANZ – Her new property was unencumbered – Rather than wait for her property sell, we worked with her conveyancer and Bank to swap her security properties over. The Bank completed a valuation on the new property and released the property for sale and replaced it with the new security. Her existing loan with ANZ remained in place with the existing loan, term and rate unchanged.
Property Value
$610k (Existing Home)
$640k (New Purchase)
Loan Amount
$350k
$350k
Lending Value Ratio ( LVR)
57%
55%
Now when the old property does sell – the Conveyancer has a clear unencumbered property. And we don’t need to worry about settlements.
1. Jess & Jack
Jess and Jack had a mortgage over their first property; but with 2 kids and a dog (Big Happy Labrador) they wanted to upgrade to a bigger property. Due to a change is circumstances – Largely moving from working for wages to becoming self-employed they were outside their Bank’s policy.
Also, fortunate to have considerable savings – and an increase in market value on their current home. Jess and Jack were also able to use the portability feature on their loan and retain their existing mortgage. Their current home was sold; and Jess quickly found their next home to purchase. She was smart in asking for a 90-day settlement on the sale of their first home and shorter settlement date on the purchase – settlement dates aligned to be only a week apart and a licensing agreement meant they could remain in their original home for a further fortnight post sale settlement – to move properties over a couple of days rather than same day!
In this scenario the applicants were aware that they did need to make a cash contribution towards the purchase, but their Loan and repayments remained the same and this was important to them – they didn’t want a bigger mortgage or have to change banks if the income didn’t qualify. They were able to contribute the balance of funds through their savings.
Property Value
$911.5k (Existing Home)
$1,020k (New Purchase)
Loan Amount
$488k
$488k
Funds to Complete (Savings)
NA
$193.5k
Lending Value Ratio
54%
48%
Initially the conveyancer on the transaction didn’t understand portability and wanted to see a Formal Approval – however after explaining the key term - The existing loan remains but the security behind the loan is swapped out “ported” to the new property; it all clicked into place – and Bank staff on portability files are very experienced in the process.
Not sure if your lender has portability and thinking it may be an option for you? You can check the features on your loan, read the terms and conditions in your loan contract or simply call your lender.
If this is something you are interested in discussing further, please reach out.