Andrea Sophocleous investigates the growing trend to save money by taking your mortgage with you from home to home.
December 1, 2009
Most home loans are set for 25 or 30-year periods, but you would be hard-pressed to find someone who lives in the same house for the entire lifespan of their mortgage. With many people upgrading – and in some cases downgrading – the ability to transfer your home loan from one house to another, without having to fork out for the usual set-up and exit fees, is an increasingly attractive loan feature.
Loan portability, as this feature is known, is available on a growing number of home loans. RateCity research shows that of 950 residential home loan products on the market, 814 include portability – that’s an impressive 86 percent.
In a world where convenience is paramount, the benefits of loan portability – in both cost and time – are obvious. Establishment fees for new loans can be up to $800, while exit fees can be a percentage of the original amount borrowed, not the amount remaining on the mortgage.
Exiting your mortgage in favour of an entire new home loan package when you sell one property and buy another, can add thousands of dollars to your bills. Using your new home as security for the existing property – therefore “moving” the loan from one property to another – can save you a large sum of money, as well as time applying for and filling in forms for a new home loan.
Lenders have noted a growing demand for portability for these and other reasons. “There are no restrictions for loan portability – any size loan is fine – other than you can’t change the loan structure, for example change the number of borrowers on the loan. There is no change to the interest rate you pay on your loan, so it is a very good option for the customer if they are moving,” says Mark Buckman, chief marketing officer at the Commonwealth Bank of Australia.
“Customers do not have to sign a new contract – a loan variation is sufficient – and they can retain the same home loan account number,” adds a NAB spokesperson. “Under the NAB Choice Package, there is no additional fee for portability. It is covered by the annual package fee.”
Some home loans carry a portability fee, such as the $300 security substitution fee charged by the Commonwealth Bank. This is a flat fee regardless of the loan size.
If you already have a home loan, check with your lender if this is part of your loan. If you are applying for your first home loan, make sure you ask about mortgage portability to leave your options open.