Difference between transferring a mortgage vs redeeming and taking out new mortgage

regency_man

I am planning to move home and I’ve just got off the phone with my current mortgage provider and I’m utterly confused!

I assumed that it would be fairly open and shut, I’d sell my existing house, pay off the outstanding mortgage balance (plus any redemption fees) and would receive any remaining equity into my bank account.  Then the new mortgage would start and carry on like a normal purchase.

My mortgage provider have said it doesn’t work like that when ‘transferring’ mortgages as an existing customer.  They said what would happen is that my current mortgage would ‘transfer’ to the new property and there would be a second ‘part’ mortgage for the additional borrowing needed to buy the more expensive new property. 

My understanding of this is that means the security of the original mortgage would transfer to the new property, plus the new borrowing required.  Essentially leaving my current property without a charge against it?  So in effect what happens is I then own my existing property outright and would receive the full proceeds on sale.  However they’d only disperse the difference between the new borrowing needed and the original mortgage to me, so part of the proceeds from the sale of my house would be needed to cover the difference.

I think, in effect, this is the same thing.  Let’s pretend for the sake of easy maths that the original house is valued at £500,000 with a £200,000 outstanding mortgage.  The new property is valued at £1,000,000 and I have £100,000 savings to put as a deposit, needing a £900,000 mortgage.

What I thought would happen:
1.       Pay the £100,000 deposit on the new property.
2.       Sell my existing home, pay off the £200,000 mortgage in full and receive £300,000 proceeds to me.
3.       Take out a new mortgage for £900,000, which would be paid directly to the seller.

What they are saying:
1.       Pay the £100,000 deposit on the new property.
2.       My existing £200,000 mortgage transfers to the new property.
3.       Sell my existing home and the full proceeds of £500,000 is paid to me.
4.       They deposit an additional £700,000 'part mortgage' which would go directly to the seller.
5.       I pay £200,000 from the house sale to the seller to make up the £900,000 needed.  Leaving me with £300,000.

Is that right? It all works out the same financially, just wasn’t quite sure how it all worked, and they've told me the transfer will cost me significantly less in redemtion and early repayment charges.   However to me it seems like there will be a period where my original mortgage is now secured against a property I don’t yet own – or does it legally all happen on the ‘same day’?

Will my conveyancer handle all of these transactions in the second scenario?  Is this standard practice?

Cheers!

penners324

It all happens on the same day.

kingstreet

They are talking rubbish. You can't transfer a mortgage from one property to another. On the completion of the sale your solicitor repays your existing mortgage and holds the residual equity. If you are buying on, you have applied for a new mortgage and at completion of the purchase your solicitor adds your equity and the new funds together and send them to the vendor's solicitor for the purchase to take place.

You may be able to "port" the mortgage. This means the terms and conditions of the old mortgage are transferred to the new mortgage as it starts. Any increased borrowing is offered on one of the lender's products current at the time. You will still have one mortgage but it will be made up of two sub accounts to reflect the differing terms applying to the different borrowing elements.

If your sale and purchase are not simultaneous, you may pay the early repayment charge as you sell and have it refunded as you buy.

Thrugelmir

The solicitor handles all the financial aspects on behalf of you and the lender. Also ensures any liabilities are settled, e.g. estate agents fees. If there's a residual balnce once the transaction is complete you'll receive it.  In essence solicitors are trusted to act without impropriety. 

cdrz

I’ve just gone through this to save the £4000 early termination fees
the sale HAS to go through first
and then the money from the sale is released into the new home, shortly after the funds for the ‘top up’ are released 
it’s all done on the same day
you don’t own any part of the old house 
but the mortgage will be in 2
original mortgage - 1
top up value on new home - 2