Substitution of security

1.   What is a loan/mortgage substitution?

A loan/mortgage substitution (also known as portability) lets you keep your current home loan when buying and selling properties by swapping or substituting the security held against the loan. Essentially it means swapping out one property for another. It’s a cost-effective and time-saving feature that could take away all the hassles of finding a new home loan when buying a new property. Find out how you could use your loan’s portability feature to save.

2.    Are these the same thing?

Substitution of security is called many different things, depending on your lender. Here at St.George, we refer to it as home loan portability. Most importantly, although additional terms are sometimes used, they all mean the same thing. Keep your current loan and swap out the property securing the loan. If you come across any of these terms, they are referring to a substitution of security:

• Home loan portability
• Security swap
• Mortgage substitution
• Home loan transfer
• Security substitution

3.   What are the benefits?

By substituting security on your current home loan, all you are changing is the property securing the loan. Every other aspect of your home loan remains unchanged. This means you can:

Keep your existing home loan functions and structure: The same interest rate, repayments, features, linked accounts, setups, loan balance and term.

Avoid break costs on a fixed interest rate loan: As you’re making no changes to the loan set up or balance, break costs will not apply if you port your loan.

Reduce your costs when buying and selling: There’s no need to pay upfront or new application fees for a new home loan.

Get it done faster and with fewer hassles: It’s faster than applying for a new loan, as there’s less paperwork and no personal financial checks.

All you need to do is find the property you want to swap the security with.

4.    Is my existing loan portable?

Not all home loans are portable as it’s not a standard feature offered by every lender. Before you can even consider it, you’ll need to ask your lender or mortgage broker this question:

Can I transfer my home loan to another property?

Or you’ll need to check your loan contract and see what options are available to you.

At St.George, all our standard home loans offer portability, so chances are you can take advantage of this special home loan feature. There are, however, some circumstances where it can’t be used:

• Using a commercial property as the security substitution
• Existing home loans taken out by non-residents
• Home loans with a delinquency history
• Construction loans
• Loans that have a loan increase that has not yet been approved (to be completed before applying for portability)
• Existing relocation or bridging home loans.

5.    What will it cost?

A security substitution can offer significant savings when it comes to the fees payable and the time it takes to swap the security on your existing home loan compared to closing out your loan and then applying for a new one.

Some lenders may charge loan portability fees, but at St.George, no portability fees are payable to port your loan. The only costs you may need to pay include a mortgage discharge, valuation, or transfer fees. Depending on your lender, these can range from $100 to $700.

If you compare those fees to the potential charges to close out and apply for a new home loan, portability can be a cost-effective method of selling and buying property.

Look out for these charges:

• Discharge or settlement fees (range $150 to $700)
• Early exit or fixed rate home loan break costs (these charges can run into the tens of thousands)
• Application fees (range $150 to $700)
• Property valuation fees (range $100 to $300)
• Mortgage registration fee (vary by state from $116.80 in VIC up to $187 in QLD)
• Search title fee (approx $50 per search)

Note: You should also be mindful that stamp duty, legal fees and agent fees may also be applicable as part of the sale and purchase process.
 

6.    When should you consider using home loan portability?

Anyone can consider using portability when buying and selling property, but it could be beneficial if:

• You have a fixed rate home loan, and you want to avoid break fees
• Refinancing the same amount with a new home loan may not be possible due to changes in your personal circumstances (eg. reduced income or between jobs, maternity leave)
• Refinancing the same amount with a new loan may not be possible due to changes in lending criteria (eg. tightening up of standards and process)
• You have tax-deductible interest from an investment property that you don’t want to repay.
   

7.    How does security swap work?

When you’re considering using security substitution to keep your home loan, there are two ways that you can do it, depending on the timing between when you sell your current home and purchase your new property.

Same time settlement

Use this option if you've sold your original property and bought your replacement property simultaneously. Meaning the settlement dates for both properties align and will occur on the same day.

How it works with St. George: Your loan security is updated on your settlement date, swapping it from your old property to the new home you’ve purchased.

What you need to do: Speak to your lender and apply for portability before selling your existing property or purchasing the new one. As you’re keeping your home loan, you need to continue to pay your loan repayments as usual.

Deferred settlement

Use this option when you've sold your original property but haven't purchased your new one yet, or if you're waiting on the settlement of your new property. Meaning you settle your old property before your new one.

How it works with St. George: As your old property has settled, but your new one hasn't, a term deposit is setup by the bank, using the sale proceeds as temporary security against the loan for up to 6 months (conditions apply) until the new one is ready to settle. If you pay Lenders Mortgage Insurance on your current home loan, the term deposit may only be set up as security against the loan for up to 3 months. Once security is transferred to your new home, the term deposit is closed.

What you need to do: Speak to your lender and apply for portability before selling your existing property. As you're keeping your home loan, you need to continue to pay your loan repayments as usual.

What happens if I’ve bought before I’ve sold?

Sometimes you might find your dream home first and then decide to sell your existing home. This doesn't necessarily mean that you can no longer transfer the security. It just means you need to apply for a bridging loan to cover the new home until you sell your old one. Then, once you've sold, the bridging loan is closed, and the new property is substituted as security on your ported home loan. At  St.George, we call our bridging loan a Relocation home loan. Depending on your circumstances, a relocation loan could work for you.

To speak to a St.George home loan expert to discuss your options, call 1300 304 660, 8am-8pm AEST, Monday-Saturday, or request a call back.

8.    Can I transfer any type of property?

The property that you're transferring needs to be of equal or greater value and, in most cases, needs to be a like-for-like substitution. In some cases, if you’re downsizing and reducing your loan, you may still be able to use portability. Your lender will be able to confirm if a transfer is possible.

What if my new purchase costs more?

Suppose your existing home loan does not cover the costs of your new property, meaning you're looking to upgrade to a more extensive or costly home. In that case, you can apply for a home loan increase or ‘top up’ before you apply for portability. When combined with a security swap, applying for a loan increase is also a more straightforward and cost-effective method of securing the funds needed for a new home purchase than closing out your existing loan and applying for a new one.

To speak to a St.George home loan expert to discuss portability or a loan increase, call 1300 304 660, 8am-8pm AEST, Monday-Saturday, or request a call back.

9.    What are the pros and cons?

There are many benefits to keeping your current loan and substituting the security, but it can be a bit tricky to navigate, as some limitations exist.

The pros

Keep the same loan and structure. Meaning your interest rate, loan balance, features and setups, including, if applicable, an offset account, redraw facility, or direct debit, will not change. Further, your loan term will remain the same, meaning you'll keep the gains you've made on your repayments.

Avoid break costs on a fixed rate loan. As you’re only transferring the property held as security against the loan, not changing the loan structure, or balance, break costs will not be a factor when you sell and purchase a new property during a fixed term. You can freely lock in a fixed interest rate at any time.

Save on upfront and new loan application fees. When you consider the potential upfront costs of applying for a new home loan, you could potentially be looking at hundreds, if not thousands of dollars. Add the paperwork and preparation time needed to secure a new loan, and it can be more hassle than it's worth.

You’ll have breathing space to find your new property. If you have a property ready to go and a same-day settlement is an option, you can transfer security on the same settlement date, but if you haven't found a property or are not ready to settle yet, you can choose a deferred settlement. You'll have up to 6 months to settle (conditions apply*).

Re-borrowing the same amount with a new loan isn’t possible. If your personal circumstances or changes to lending criteria mean you wouldn't be able to re-borrow the same amount if you applied for a new loan, portability may be the best solution to achieve your goals.

The cons

Your loan may not be eligible for a security swap. Portability is not available:

• Using a commercial property as the security substitution
• Existing home loans taken out by non-residents
• Home loans with a delinquency history
• Construction loans
• Loans that have a loan increase that has not yet been approved (to be completed before applying for portability)
• Existing relocation or bridging home loans

Your new property is not of equal value. More of a hiccup than a con; if you don't have enough funds to cover the new purchase, as the property is more expensive than your current home, you can apply for a home loan increase before applying for a substitution of security.

You’ve bought first but haven't sold yet. This could complicate things, but it may be possible to apply for a relocation or bridging loan to purchase the new property. Then once you've sold your old home, you can close out the bridging loan and port your loan. This would mean that you'll be paying two mortgages until you can settle on your original property.

You may have to pay some fees. Some lenders do require payment of a portability fee (St.George does not), and you may have to pay a discharge fee for your existing mortgage and valuation or transfer fees. However, any applicable fees will be far outweighed by the upfront and set-up costs involved with a new home loan application, not to mention the hassles, preparation and paperwork involved, making portability a far simpler and cost-effective option.

10.   How do I apply?

You’ll need to speak to your lender first. If your home loan is with St.George, you may want to talk to a home loan expert first to make sure your loan is eligible. Then you can apply for a substitution of security by completing the Property and Security Request form, making sure you provide the following:

• Details of your current property and new property (if applicable), including the settlement date
• Select No when asked Will the loan be closed? and write Application for loan portability under Additional information
• Please download, print, and sign the form before returning it to us. We’ll then get back in touch with you.