Change in situation / mortgage downsizing

davidbryce

Hi All,

First time posting on here so apologies if this is in the wrong place. Basically the situation is that we have a property which we took a mortgage out based on my wife and I's salary. She has now gone back to uni and i am the sole earner. On top of this, our house value has increased dramatically to the point where we are thinking of selling in order to release equity and purchase a lower valued property.

I think i have most of the math understood, but what i can't find any information on is what happens if we move to new property and the new mortgage is lower than our current one, do we pay a penalty of some sort, or would this be considered a new mortgage? Example below if i am not explaining myself very well.

Thanks in advance.

Example
Current value left on mortgage: 100k
Sell house for: 250K
Equity: 150K

Value of new mortgage: 80k (its this value being lower than the above 100k that i am wondering about)
Equity of 70k for deposit/cash for improvements

MortgageMamma

This very much depends on the lender you are with, but as a general rule a partial and proportionate early repayment may be payable if you choose to "port" the mortgage to a new property. In doing so, the conditions of your current mortgage are replaced with the conditions/criteria of the new mortgage with your current lender. I'm telling you this as lenders "underwriting criteria" and affordability models change over time.

If your early repayment charge is say for example, 1% so £1,000 (1% of £100k) and you take a loan of £80k then you would theoretically pay a 1% ERC on 20% of the difference between the two balances

I'd recommend you take some professional advice. Your mortgage affordability now would be reduced due to your wife losing her income, and your current lender may not be the most suitable/cheapest option.

What you need to do is ask a broker to compare a "porting" deal with your current lender, to what is available from a new lender factoring in the proportionate early repayment charge, work out the total to pay on both options.

Hope that helps!

getmore4less

You need to look at your ERC and the rates

What value are you buying in at if you still need £80k mortgage?

The costs of moving will swamp the saving on a £20k smaller mortgage.

[Deleted User]

Not sure I understand that example?

Sell house for 250k, pay off mortgage 100k, remaining cash 150k. This makes sense.

Then you say new (cheaper) house with deposit 70k and mortgage 80k. Where did the other cash go? If you have 150k left from the first house sale, why would you take a mortgage to buy a 150k valued new house?