Moving house? What happens to your mortgage?

So you’re thinking about moving house. What happens to your mortgage?

Considering that many home loans are taken out over a 30 year term, and New Zealanders typically shift house every five or so, this is quite a common scenario. 

There are a few things to think about when it comes to moving when you have a mortgage.

What happens if you own a home and want to shift? 

If you already have a mortgage on a home and you want to sell it and move somewhere new, there are a few things that can happen.

Transfer your loan

If you are selling your existing home and buying another one at the same time, you may be able to transfer the security attached to your home loan.

Usually this happens when the settlement of both properties is on the same day.

In some cases, if you sell a little while before the purchase of your new property, you may be able to arrange for your lender to hold the proceeds until the second transaction occurs.

Substituting the security means instead of the loan being secured by your current home, it shifts over to your new one. 

If the new house costs more, you may need to top up your loan with some extra lending. Sometimes you may not be able to swap your security if there is additional borrowing required. We can help you to look at your options.  

If you can substitute the security on your home loan, you will generally be able to keep your loan terms, including the same interest rate, which may be a benefit in a rising rate environment. This means not paying a break fee to end any fixed term that might be in place. 

If the lending amount remains the same, you also would not usually need to repeat the application process that you went through when you first took out the loan and proved you could afford it.

If there is a delay between the purchase of your new house and the sale of your existing one, you may need bridging finance. This can be closed, if you already have an agreement signed for the sale of your current house but just need finance to cover the time between the two settlement dates, or open bridging, if you do not yet know how long you’ll need to own two houses and pay two mortgages.

We can explain these options to you, should you require them. 

Pay off your loan (and maybe get a new one in future)

If you are selling a house and don’t have a new purchase lined up, you may need to pay off your mortgage on settlement date of your existing house.

If you are on a floating rate, this is a relatively straightforward scenario – you’ll clear the debt and any additional funds from the sale will be paid to you.

If you have a fixed term, though, you may need to pay a break fee if available interest rates have changed since you fixed.

Even if you are moving to a new home that is a bit cheaper, you may need to pay off some of your lending to get down to a level of borrowing that the bank is comfortable with. This could also attract a break fee.

Paying off your loan will mean that you need to apply for a new loan again when it comes time to buy.

It may be that lenders’ eligibility criteria has changed in the meantime, or your financial situation might be different.

We can help you to look at your current situation and circumstances and determine what new lending you might be able to apply for, given any funds that you are likely to be left with after the sale of your current home. 

Refinance your loan

Moving house can also be a time to think about changing your home loan structure. You might consider whether a different lender might be more suitable for you now, or think about changing the structure of your current loan.  

Again, if you’re breaking a fixed term there may be a fee associated with this. Refinancing will also mean a new application process if you want to shift to a new lender.

As your advisers, we can help you work out what the various options available to you might be, and what might be an appropriate solution.

Work with the experts

It will be important to carefully weigh up your options when you’re deciding on the best way to make your next move. We are here to help and can work through the options with you so that you have a full understanding of the pros and cons of each.

Whatever your next step on the property ladder, our expert team is here to help you get closer to your goals.