Help me understand porting mortgages
April 4, 2022 1:25 AM Subscribe
I am looking to buy a new house. Currently we have a mortgage of a value of x, with a fixed term. To buy the new house, we would need to borrow an additional amount, y.
To avoid an early repayment charge, we need to port x, and get an additional mortgage y. How does that work?
So our current mortgage X if financed at a particular rate, and is respective to the value of our house.
When doing the decision in principle, I mentioned that I had an existing mortgage, but when it came to the question of the "deposit" amount, I got a bit confused.
My intention is to maintain the current loan to value (80%), by using the value of the sold house, plus the additional loaned amount and some savings to cover the cost, so when it asked for deposit amount, I put in a 20% value.
I got a decision in principle, which suggested that they would loan us the full amount, x + y.
So a few questions
1) Did I do this wrong? Did the bank think I was asking for x+y in a loan, rather than just y? This seems obviously nuts to me (given my salary information, there's no way I would be able to afford the existing mortgage plus a full new house, and surely the bank should know this?)
2) Is the additional loan y leveraged against the full value of the house, so my ltv would in fact be y/value rather than x+y/value? I assume not, but I'm pretty confused!
Obviously it would be better if it was leveraged at y/value, but then it would seem to always be in my favour to split a mortgage, because each of the two debt would have a better loan to value, and that seems obviously silly!
So our current mortgage X if financed at a particular rate, and is respective to the value of our house.
When doing the decision in principle, I mentioned that I had an existing mortgage, but when it came to the question of the "deposit" amount, I got a bit confused.
My intention is to maintain the current loan to value (80%), by using the value of the sold house, plus the additional loaned amount and some savings to cover the cost, so when it asked for deposit amount, I put in a 20% value.
I got a decision in principle, which suggested that they would loan us the full amount, x + y.
So a few questions
1) Did I do this wrong? Did the bank think I was asking for x+y in a loan, rather than just y? This seems obviously nuts to me (given my salary information, there's no way I would be able to afford the existing mortgage plus a full new house, and surely the bank should know this?)
2) Is the additional loan y leveraged against the full value of the house, so my ltv would in fact be y/value rather than x+y/value? I assume not, but I'm pretty confused!
Obviously it would be better if it was leveraged at y/value, but then it would seem to always be in my favour to split a mortgage, because each of the two debt would have a better loan to value, and that seems obviously silly!
I can't speak to your specific situation but I recently ported my mortgage and went through a similar process (including a similar panic that I'd accidentally bought two houses!). My bank wanted to know how much I wanted to borrow in total for my new house, including the amount I'd already borrowed off them. I effectively ended up with two mortgages on my new house - one for the remaining repayment amount for my existing mortgage, and one for the additional borrowing. This may well be what your bank is showing you with the x + y figure - that's how they presented it to me.
When I made the final application I had to talk with one of the bank's mortgage advisors who explained how the porting process worked to me and entered my financial information. That really allayed my worries. I'd definitely recommend getting an appointment with an advisor so you can ask them these questions.
posted by dudekiller at 2:08 AM on April 4, 2022 [1 favorite]
When I made the final application I had to talk with one of the bank's mortgage advisors who explained how the porting process worked to me and entered my financial information. That really allayed my worries. I'd definitely recommend getting an appointment with an advisor so you can ask them these questions.
posted by dudekiller at 2:08 AM on April 4, 2022 [1 favorite]
This is confusing to follow without numbers, even made up ones, but at the end of the day it doesn't matter because you need to clarify with the mortgage lender. Pick up the phone and ring the bank!
posted by DarlingBri at 2:11 AM on April 4, 2022 [1 favorite]
posted by DarlingBri at 2:11 AM on April 4, 2022 [1 favorite]
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posted by Cannon Fodder at 1:25 AM on April 4, 2022 [1 favorite]