Transferring a home loan

When you take out a mortgage, you enter a decades-long commitment. So it’s quite possible your circumstances may change during this time. Whether you’re looking to transfer your home loan to another person or an entirely different property, there are plenty of things to consider.

Transferring your home to someone else

If you have an outstanding home loan, it may be possible to transfer it to another person. There are many reasons why you may consider changing ownership such as:

• Divorce
• Illness
• Death
• Family reasons
• Change in financial circumstances

However, you cannot transfer a home loan to another person without the lender’s approval as they must comply with Responsible Lending legislation. Further, lenders will most likely require a refinance to be completed of your loan when transferring ownership or changing borrower/title circumstances.

Changing ownership circumstances

If you purchased a home with a family member or friend, you may be able to buy out the joint owner, which requires a change in ownership.

If someone on the home loan has passed away, the lenders will assist you with adjusting the ownership of the loan. This is considered a special circumstance.

If a couple has divorced, or a partner wishes to bring a new spouse onto the loan, changes to land and title require approval from your lender.

Put simply, if you’re planning on removing yourself from the mortgage completely and transferring it to someone new, they will typically need to buy you out of the home loan. This process involces the home loan lender approving the new person and assessing whether they can responsibly service the repayments.

Favourable purchase agreement

One of the pathways to transferring a home loan is through a favourable purchase agreement. This is when you sell an asset at below market value to the person you wish to transfer the home loan to. Essentially, you sell the property for the same price as the outstanding loan. One of the main benefits of this approach is that you avoid some of the costs of sales , such as real estate agents’ fees.

The new homeowner will still need to apply for a home loan and meet the lender’s eligibility requirements.

Title transfer

If you’re simply looking to add someone to the property title, you could opt for a title transfer. This can be done through a transfer form from your state or territory. Keep in mind that stamp duty and other ongoing costs will likely be charged. 

A lender will likely need to approve the new borrower coming onto the property title and will likely that you refinance your home loan, such as through joint mortgage application.

Transferring your home loan to another property

Buying a new property but want to keep your current home loan?

This is possible through what lenders’ call loan portability. Loan portability lets you sell your current home and purchase a new one, all while keeping the same mortgage - the balance, interest rate, and any built-in features e.g. offset sub-account.

However, this is only possible if the new property meets the same eligibility requirements as the old one. With loans.com.au, this means that the new property must have an equal or greater value than the existing property, and settlement for both properties must occur simultaneously.

The main advantages of loan portability is that it avoids refinancing and saving you the trouble of applying for a new mortgage. Thus, it can help you save money on establishment and exit fees. Keep in mind that some lenders may charge a loan portability fee.

If you’re planning on transferring your mortgage to another property, the lender will not allow you to change the loan structure. This means you will be unable to transfer the loan from one person to another during this process. If you need to change the borrowers on your loan whilst also substituting the property, you will likely need to apply via a full refinance.

Factors to consider before transferring a home loan to another lender

If you’re thinking about refinancing your home loan, there are a number of things to consider besides the all important interest rate before transferring to a new lender.

Weigh up the cost of lender's mortgage insurance

Lenders mortgage insurance (LMI) is charged when you borrow more than 80% of a property’s value from a lender. If you haven’t built up enough equity in your home or the property has dropped in value, you may have to pay LMI when refinancing. This can outweigh the savings you’ll get from obtaining a lower interest rate.

Compare the costs of switching your mortgage

It’s important to do your research when you refinance to see what costs you may incur. There may be fees from your current lender to cover the cost of ending the loan, and your new lender may charge exit, application, and valuation fees.

If you’re breaking a fixed loan you will likely have to pay break costs which can be incredibly expensive. You should calculate the cost of fees before refinancing to ensure you’re saving more than you’re going to be charged.

Use the comparison rates!

You’ve likely noticed that there are some great rates on offer for home loans at the moment, the market has never been more competitive.

While these rates seem attractive, make sure you are using the comparison rate when comparing loan offers rather than the actual rate. The comparison rate is designed to show you the total cost of the loan, inclusive of any relevant fees and charges. It is a very useful tool for researching, and you will likely find that while a lender may offer a home loan rate lower than your existing loan, the comparison rate is matching or sometimes even higher than your current loan rate - meaning it may not be worth going through the hassle of refinancing.

Consider the long term

Although the home loan market is highly competitive, it is important to do your research and consider the long term effects of refinancing. A low-interest-rate offer may seem like a no-brainer, but it could potentially come with greater costs in the future. With annual fees and introductory rates becoming more common, you may find yourself in a better position a year or so down the track by staying with your current lender, even if the interest rate is a bit higher than others.

Some questions you may wish to consider when looking to refinance include:

• Will the interest rate stay this low? Is it an introductory offer?
• Do you trust your potential new lender? Have they been in business for long? What are their customer reviews like?
• Does the new loan have any annual or ongoing fees that will end up costing more?

Looking at applying for a new home loan or refinance your existing one? Talk to our team of friendly lending specialists to help you settle quickly.

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