If you already own your own home with an existing mortgage, but want to move house, have you thought about what happens to your mortgage?
Many people assume that the mortgage will just move with them, and in fact, many mortgages are portable which means they can simply be transferred from the property you originally borrowed against and transferred to your new home. This is sometimes referred to as ‘porting’.
The other option is to exit your current mortgage which can be done by paying it off with the sale of your house. However, exiting before the mortgage term is up can often incur fees.
So, what option should you go for? Porting or exiting? As expected, there are a few factors to take into consideration when making this decision.
This may seem like the easiest option, and if you are planning on moving to another property of equal value then it most likely is. Some lenders may charge a fee for the transfer of the mortgage to a new property, but this is usually a few hundred pounds which in comparison to most early exit fees is much easier on the pocket.
It is not that common to be moving to another property of equal value however. Usually people move up or down the property ladder which makes matters a little more complex.
If your new property is cheaper than your current one, then when you move your mortgage, even though you are keeping the same mortgage with the same lender, you may have to pay an early repayment charge on the sum you are no longer borrowing. The difference in cost between the two properties is what you will be paying the early repayment fees on.
If the property you are moving to is more expensive than your current one, then it is likely that you need to borrow more money. If your deposit has not increased enough then this will change the loan to value (LTV) ratio. Usually, the higher the LTV the higher the interest rate.
For example: You buy a £200,000 house with a £50,000 deposit. This means your loan to value ratio is 75%. If you were to move to a £300,000 house, and had a £50,000 deposit, your LTV will increase to 83.3%. To keep your interest rate the same, you would need a 25% deposit on your new house, £75,000.
Another thing to bear in mind is that when you move your current mortgage deal to another property, you will have to meet the lenders criteria at that particular point in time. Even though your circumstances might not have changed, your lenders criteria may have become a lot stricter since when you took out your original mortgage, which may mean that you are no longer eligible to move your mortgage.
You are entitled to leave your mortgage at any point as long as you meet the terms of your deal. This will mean paying back the amount you borrowed plus any fees. The fee incurred for paying back your loan before the mortgage term is up is called an early repayment charge (ERC). These vary depending upon your lender and the type of mortgage you have.
The fees are charged on the amount you are repaying and can range from 1-5%. If you are repaying a large amount these fees can be hefty. A 3% fee when repaying £200,000 from the sale of your house will incur a £6,000 fee.
Sometimes these fees are unavoidable. If your current mortgage is not portable and you do not fit the criteria of your current lender to borrow more, then forking out for these fees may be the only way to move home.
However, interest rates have continued to fall since 2012 and it may work out that switching your mortgage provider will get you a much better rate. You may have an initial ERC, but this may be offset by the savings you make on the new interest rate on your remaining loan. This of course is dependent on your specific circumstances and the house you are moving into.
Our mortgage advisors here at Mortgage Advice UK are whole market brokers, meaning they have access to over 90 lenders and over 11,000 mortgage deals. They are able to look at and make sense of your current mortgage deal in comparison to moving to another provider and/or mortgage. They will be able to provide you with all the facts in a straight forward and simplified way and advise you on what deals might best suit your circumstances.
If you are thinking of moving home and want some honest and trustworthy advice on whether to move your mortgage or to look at a new deal, then give our friendly advisors a call.