Downsizing to free up cash but with a mortgage

Pritch2003

Hi All,

My wife and I are owner occupiers of a property worth 450k with a mortgage left for 150k. 

My question is, if we downsized to a house worth 200k can we take our mortgage, or maybe a portion of it with us to free up money for a business venture? For example could we "pay off" 100k of mortgage but still be borrowing 50k against the 200k house thus giving us 150k from the equity in the current house (450-200-100) and 50k borrowed against the new property? This would potentially leave us 200k for our venture...

The figures are rough and could vary, my question is really with regard to the best way to free up money from our current house which we under occupy, we feel that we could put the money in this house to better use but aren't sure how to get it...

The other option we see is it downsize and be mortgage free and then save the money we need but this would take considerably longer to build up the funds.

Thanks

Paul

moneysavinghero

Would you still have jobs, or are you giving up the jobs to take on this business venture?. If you have jobs then should not be a problem to get a mortgage for 50k.

Pritch2003

moneysavinghero said:

Would you still have jobs, or are you giving up the jobs to take on this business venture?. If you have jobs then should not be a problem to get a mortgage for 50k.

Hi, thanks for the response, we would be keeping our jobs, would this be 50k from an existing mortgage ported over? Or would it be a new mortgage? Please excuse my lack of knowledge, and would there be restrictions on how we use the money? For example is it only meant to be used for the property that we get the mortgage against? Thanks again

moneysavinghero

Are you sure you will be left with £200k and not £150k. Maybe im confusing myself but:

You sell house for £450k and give back £150k to mortgage company.
You now have £300k in cash
You buy a new house worth £200k. You put in £150k , the mortgage puts in £50k
So you now have £150k in cash

I think you may have counted the £50k twice.

moneysavinghero

If you need £200k you could put in £100k and the mortgage put in £100k then you would be left with £200k cash. Would still give you 50% deposit so you would still get good rates.

Pritch2003

Yes I think you're correct lol thanks, so it seems from your answer it is likely to be two separate transactions in a way. Paying off one to then open a new one

moneysavinghero

I put them as separate transactions to keep it simple. You could port the mortgage over to the new property if you wished.

Racky_Roo

You usually have to port the whole amount over - so all £150k which on a £200k house means loan to value of 75% which might not be allowed on the existing mortgage. Most people don't port their mortgages when they don't need the full amount unless they have a high redemption penalty as you're paying interest on a high amount of borrowing for no reason.

First step would be to find out if there is a redemption penalty on the existing mortgage and if not, I'd just get a new one for the lower amount you want to borrow. People think porting means no applications, but actually it's very similar to applying for a new mortgage, you still need to provide proof of income and a hard credit check is done.