Substitution of Security – Loan Portability

Substitution of Security – Loan Portability

Buying a new home but already have a loan on your current property? You might be interested in substitution of security, also known as loan portability. This feature in some home loans lets you transfer the balance, interest rate, and other terms from your old loan to your new one. Sounds handy, right? Let’s dive into the details.

What’s So Good About Substitution of Security?

1. No More Break Costs
If you’ve got a fixed-rate loan, you usually have to pay break costs if you close it before the fixed term is over. Substitution of security lets you avoid that.

2. Keep Your Existing Interest Rate and Terms
Love your current interest rate? You can keep it, potentially saving you cash every month.

3. No Need to Apply for a New Loan
Avoid the fuss of paperwork and save both time and money.

4. Faster Buying and Selling Process
It can make everything quicker when you’re keen to move.

The Downside of Substitution of Security
But, it’s not all rosy. There are a few drawbacks too:

1. You May Get Rejected
Poor credit history or if your new property’s value is lower than the old loan balance might make your lender say no.

2. Fees Can Add Up
Different lenders might charge you differently for the process.

3. Interest Rate Changes Could Happen
You might not get the same interest rate on your new loan, depending on current lending rates.

How Do You Apply?
Simply reach out to your lender and ask for substitution of security. Provide them with needed documents, like the contract of sale. If everything looks good, they’ll release the security on the old property and put it on the new one, both on the same day.

When Should You Consider It?
It’s best if you’re selling and buying at the same time, especially if the new place costs less. Or, if you want to refinance but keep the interest rate you love.

How to Get Approved?
• Maintain a good credit score.
• Have some deposit saved up.
• Ensure your new property’s value equals or is higher than the old loan balance.
• Sort out both properties on the same day.

Conclusion
Substitution of security can be a useful option when buying and selling properties, but it’s not for everyone. Be sure to weigh up the benefits and drawbacks, and consider your personal circumstances before jumping in. It could save you time, money, and a fair bit of paperwork if it suits your situation.