Transferring your mortgage

Selling and buying a property: should you transfer or repay your current mortgage?

Would you like to sell your property in order to purchase another, but are still tied to the mortgage on the property you wish to sell? Some owners choose to transfer their mortgage to the new property, but is this the best solution for you? Would you be better off repaying your existing mortgage and taking out a new one?

Although transferring your mortgage can save on costs, switching to a new mortgage may be a better solution in certain cases, as we will explain here.

How can you transfer your mortgage, and what are the advantages?

Homeowners often wish to sell their house or flat in order to buy one that is better suited to their needs: more space, a better layout, a move to a different neighbourhood or town, or simply falling in love with another house…

If you are in this situation, you have the option of transferring your mortgage to your new property while retaining the same loan terms.

Indeed, transfer costs are generally lower than the costs incurred when repaying one mortgage and taking out another. Furthermore, it is sometimes possible to renegotiate the terms of your mortgage when transferring it, although this is not always the case.

In terms of registration duties, transferring your mortgage offers clear advantages:

• As the loan is not closed, no early repayment charge is payable, nor are any registration duties due for the discharge of the old mortgage,
• The life insurance policy taken out for the old loan remains in place, with no change to the premium,
• No new loan is granted, so there are no additional registration duties: the old loan remains in place with unchanged terms, and only the mortgaged property changes.

If the amount required to finance the new property is higher than the initial amount, the mortgage securing the old loan may be transferred and a new mortgage taken out for the additional sums.

Once again, this helps to limit registration costs.

You should also be aware that a transfer can only take place if both loans are taken out with the same financial institution. Pay close attention to the timing as well, as too much time must not elapse between the sale and the new purchase.

If your current property does not sell immediately and you do not want to risk ‘losing’ the new property, you can enquire about bridging loans.

When is it better to repay your mortgage and take out a new one?

This option is not often chosen because it involves substantial costs:

• The early repayment charge on the loan repaid ahead of schedule,
• The costs of discharging the old mortgage,
• The arrangement fees for the new loan,
• A new life insurance policy with a higher premium because the borrower is older,
• The deed costs for the new loan.

However, even though it may seem more complicated, taking out a new mortgage may be worthwhile if current financial market conditions are more favourable.

Indeed, if current interest rates are significantly lower than the rate you obtained when purchasing your property, you can take advantage of this to reduce the cost of your mortgage considerably. In other words, if your existing mortgage rate is substantially higher than the rates currently available, it is in your interest to repay your old mortgage and take out a new one.

However, if your existing rate is lower, equal to or even slightly higher than current rates, it is in your interest to keep your mortgage and transfer it on the same terms. The difference must be substantial enough to cover the additional costs and provide you with a clear advantage in terms of repayment conditions.

To find out whether you can benefit from current rates, you will need to seek advice from your bank or financial adviser to determine which option is best for your particular circumstances.

In conclusion

Transferring your mortgage will therefore generally save you considerable expense and complications. This is the option chosen by most homeowners who wish to sell and purchase another property.

Furthermore, you may be able to renegotiate your mortgage, ensuring that you benefit from the advantages offered by the current market.

On the other hand, repaying your mortgage is only worthwhile if the rate you previously obtained is substantially higher than the terms currently offered by the market. Do not hesitate to seek advice from your estate agent, who will also be able to direct you towards the financial institutions best suited to your circumstances.