What Happens if You Have a Mortgage but Want to Move?

Are you wondering what happens if you want to move home but have a mortgage? This question is often asked by many homeowners, leaving them confused about whether they can keep their mortgage when selling their existing home or need a new one when moving.

This insight aims to shed light on this topic, offering practical advice and clarifying common misconceptions.

Key Takeaways

• Mortgage porting allows you to transfer your existing mortgage to a new property without penalties, keeping the same interest rate. However, it can be complex and depends on your lender's policies.
• Porting involves applying for a new mortgage on the new property while using the proceeds from selling your current property to repay the existing mortgage.
• Consider factors like early repayment penalties, mortgage portability, the need for additional borrowing, and the competitiveness of the current rate when deciding whether to port your mortgage.
• If porting is not possible or preferred, you can explore changing lenders for a better mortgage deal. Increasing or reducing your mortgage size when moving requires careful evaluation of costs and savings.

What Happens if You Have a Mortgage and Want to Move?

When you have a mortgage but want to move, your existing mortgage will be settled with funds from selling your current property. You'll need a new mortgage for the new house and may face penalties unless you port your existing mortgage and borrow more if needed.

Mortgage porting is the process of transferring your existing mortgage, including its terms and conditions, to a new property. It allows you to keep the same interest rate and avoid early repayment penalties, but the process can be complex and depends on the lender's policies.

The Process of Porting Your Mortgage

Porting a mortgage is often described as migrating your mortgage to your new property. But in reality, it means that your existing mortgage is repaid from the sale of your current property, and then the mortgage 'deal' on the same terms is transferred to your new property.

When porting, you need to apply for a new mortgage on your new home. This is because it is not the loan itself that is transferring, but the interest rate, along with all the terms and conditions of your mortgage product. It's a requirement of all mortgages that when you sell your house, your existing mortgage loan must be repaid in full from the house sale proceeds.

Porting your existing mortgage deal allows you to keep the terms that you might have been enjoying on your current deal. It also helps avoid any early repayment charges that might have otherwise been incurred for paying off your existing borrowing before the expiry of the agreed term.

As you are still applying for a new mortgage on your new home, you will need to go through the same affordability and credit checks you previously went through to get your existing mortgage facility. You'll generally have to pay for a valuation on the new property, as well as the solicitor's legal fees and any stamp duty which might be due.

Key Factors to Consider

Before proceeding, homeowners should consider the following aspects:

• Does your mortgage come with early redemption penalties?
• Is your current mortgage portable?
• Is additional borrowing necessary to acquire the new property?
• Is the current rate more favourable than any new rate available in the market?
• Will penalties be applied if you relocate while having a mortgage?

These considerations can significantly influence your decision and financial standing.

The Pros and Cons of Porting a Mortgage

Porting your mortgage means transferring your existing mortgage and applying a new one to the new property. This process involves your legal representative paying off your existing mortgage and the lender usually applying the same rate as your old mortgage to the new one for the remaining term of the rate.

However, this process isn't always straightforward. Some lenders insist that the porting occurs on the same day as the redemption of the old mortgage. Others allow a gap of between 3 to 6 months between the sale of the old home and the purchase of the new one. If there is a gap, the lender will charge the redemption penalties when the old property is sold and refund them after the purchase of the new home.

Changing Lenders for a Better Deal

If you are unable to port your mortgage, or you choose not to, you will need to apply for a new mortgage facility to help purchase your next property. Your existing mortgage loan will be repaid by your solicitor on completion of your sale and you'll be free to find a new mortgage deal to help finance your next property purchase.

Moving home can be a great opportunity for you to explore the market to find a better mortgage deal. Whether you choose to take out a new loan with your existing lender or seek out a new facility with a different lender will depend on the deals being offered at the time.

Before you consider taking a mortgage from a new lender, it's important to compare your current deal with what the market can offer you. Some costs might be waived if you remain with your existing lender. This may not be the best advice overall, considering the interest rates, set up cost and exit fees. If these charges are applicable, you need to decide whether moving to a new lender really is the best option for you financially.

Increasing the Size of Your Mortgage

If you need to increase the size of your borrowing in order to purchase a more expensive property, you will generally have two options. The first is to port your existing mortgage deal to the new property, and then borrow the extra amount needed from your existing lender in a top-up mortgage. This will make up the amount needed to achieve the purchase.

You will only be able to do this if you meet the lender's borrowing criteria for that extra amount. With this option, you will end up with two mortgages. You will have the original mortgage deal you ported, and the new top-up mortgage. This could mean paying a mortgage arrangement fee on the new top-up mortgage. You might also find that the top-up mortgage is on a slightly less competitive interest rate than the deal you have ported.

The other option is to repay your existing mortgage deal from the sale proceeds of your current property. From there, you can simply take out a new, larger mortgage with your existing lender or an alternative lender to finance the purchase of your new property. Again, you may be faced with early repayment charges and other fees, so these will have to be factored into the overall costing.

Downsizing and Your Mortgage

Perhaps you'd like to downsize your property and reduce your mortgage borrowing. Maybe you want to release some of the equity you have built up in your home.

Downsizing typically means reducing your mortgage borrowing, as your new property will likely be smaller and therefore, presumably, cheaper. You may still be able to port your existing mortgage deal, but you may be subject to an early repayment charge. This is because you will generally be reducing your loan amount and effectively paying off part of your mortgage early.

Some lenders will allow you to downsize and keep your existing mortgage at the same level, depending on the resulting loan-to-value of your borrowing following the move. This would enable you to retain some of the equity released by the downsizing and also avoid any early repayment charges.

Advice on Moving Home with a Mortgage

When deciding whether to port your existing mortgage deal or take out a new replacement deal, it's essential to do the maths to compare the costs against the savings of the different options to see which suits your circumstances best.

Turn to a mortgage adviser who will be able to make sense of it all for you and help you make the right decision. This insight is designed to help you understand what happens if you have a mortgage but want to move and how to navigate the process, but it is by no means exhaustive. Always consult a professional adviser to ensure you make the best decision for your personal circumstances.