9 Mar 2018
Author: Stephen Breen
It’s time to take the next step on the housing ladder and you’ve found your dream property. It makes perfect sense to shop around for the best mortgage deal – but have you considered keeping your current mortgage?
With a host of cheap deals on the table, borrowers may be tempted to stray: but sometimes ‘porting your mortgage’ with your original lender will leave you better off in the long term.
Mortgage porting means taking your existing deal to the new home, allowing you to benefit from the same rate that you’re currently paying. According to the Yorkshire Building Society, 74% of millennials are not aware this is an option, and 57% of young people believe they will get a better rate by switching lender. Whilst this might be the case, it pays to compare the total costs of porting with the costs of arranging a new loan. Sometimes keeping an existing deal can work out cheaper in the long term.
It’s also worth keeping in mind that the Bank of England’s base rate is forecast to rise this year, and mortgage rates will follow. If you already have a great fixed deal, porting could be a good way to avoid the sting and lock in low payments.
For those looking to buy a bigger property, lenders are often willing to port your mortgage and offer you extra finance. However, frequently the additional finance will be charged at an alternative rate of interest.
Is a new deal a better deal?
Although at first glance another lender’s rate may seem more attractive, it’s important to weigh up the total cost of switching. Additional expenses include arrangement fees, valuation fees and legal expenses, plus any redemption penalty and exit fee on your current mortgage. Calculate the total cost of both deals and decide whether the lower interest rate would leave you paying less in the long run. Check with your current lender whether a redemption penalty will be applied anyway, even if you port: this can sometimes happen if completion of your sale and purchase do not happen on the same day. With some lenders, the penalty is applied to the balance outstanding but credited back later if you complete on your purchase within 3 months.
If you’re already on a 5 or 10 year fixed deal, remember to factor in the security of having low repayments, even when mortgage interest rates rise.
5 things to keep in mind
- You have to reapply: You’ll have to complete your lender’s standard application and affordability checks, even though you’re taking the same loan to the new property. Your lender might not accept your application to port the mortgage because your circumstances may have changed, or because their lending criteria may be more stringent since your initial application.
- You might not be able to borrow more: If you’re moving up the property ladder, the lender may not be able to offer you additional funds.
- You might need to take a separate loan: If your lender agrees to port your mortgage, they may insist on a separate agreement for additional funds (and all the associated expenses).
- It may not be cost effective: Check the whole cost of staying vs switching, including redemption penalties, exit fees, arrangement fees, valuation fees and legal fees expenses.
First time buyers: look for mortgage porting
If you’re taking your first mortgage and looking at a low long term 5 or 10 year fixed deal, ask the lender whether they allow mortgage porting. This gives you the flexibility of moving part way through the fixed term whilst continuing to benefit from the fixed payments and low fees.