If you’ve found your next home, one important area to consider is what you’ll do with your mortgage. Usually, you have two main options – taking out a new mortgage deal or porting the existing one.

Read on to find out what you need to know before you decide which is right for you.

Taking out a new mortgage deal

There are several reasons why you might choose to take out a new mortgage deal when buying your next home.

First, your current mortgage deal may not be competitive. In some cases, taking out a new mortgage deal could allow you to access a lower rate of interest and save you money in the short and long term. Usually, you’ll need to pay an early repayment charge (ERC) if you pay off or reduce the mortgage debt early, which may affect whether a new deal is the right option for you.

Second, it isn’t always possible to port your existing mortgage. If this is the case, you’ll need to take out a new deal.

As well as a potential ERC, you should be aware that you might need to pay fees, such as a valuation fee or arrangement fee, when taking out a new deal.

As mortgage advisers, we could help you assess the mortgage options available to you and explain the potential charges. Please get in touch if you have any questions.

How porting your current mortgage works

Porting your mortgage could mean you avoid paying an ERC. It may also be useful if the interest rate you pay on your current mortgage is lower than deals available on the market.

It’s important to note that porting your mortgage doesn’t mean transferring the mortgage loan to the new property. Instead, your existing mortgage is paid off, and you take out a new one with the same terms.

As a result, you’ll still need to reapply for a new mortgage and meet your provider’s lending criteria. In some cases, it might not be possible to port your mortgage. For example, if your financial circumstances have changed, you may need to apply for a new mortgage deal.

How much you need to borrow compared to your existing mortgage will affect how porting works.

Porting without changing your borrowing

If you need to borrow the same amount that’s left on your existing mortgage to buy your new home, the terms will usually remain the same, and no ERC will be applied.

Porting with additional borrowing

Many people purchasing a new home will need to borrow more to do so.

Usually, you can port your existing mortgage to cover a portion of the new mortgage balance. However, the additional borrowing may have different terms.

Let’s say your current property is sold for £300,000, and you have an existing mortgage of £125,000. The new property you want to buy is worth £400,000.

In this scenario, you’d have £175,000 in equity from the sale of your current property. You could then port your existing £125,000 mortgage with its interest rate to your new home.

You’d have to borrow an additional £100,000 to cover the rest of the new property amount. This additional borrowing would be a separate mortgage and may have a different interest rate.

Partial and borrowing less 

If the new property is less than your current one, you might choose to borrow less when you port your mortgage. This is known as a “partial port”.

Again, let’s say you have sold your current home for £300,000 and have an existing mortgage of £125,000. However, this time, the property you want to purchase is worth £250,000.

You’d have equity of £175,000 and would need a mortgage of £75,000 to purchase the new property. So, there would be £50,000 left on the mortgage loan that is no longer needed.

Normally, you’ll need to pay an ERC on the portion of the mortgage you don’t need. As this is typically a percentage of the amount repaid, it’s important to be aware of how much it would be to avoid an unexpected, and potentially substantial, charge.

Contact us to talk about your mortgage

Whether you’re looking for a new mortgage deal or want to increase your borrowing when you port your existing mortgage, we could offer support. Please get in touch to talk to your mortgage adviser.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.