What is Substitution of Security and How Can I Do It?

A substitution of security, also known as loan portability, is the ability to transfer your mortgage from your old property to your new one. By paying a small fee, depending on your lender, you can transfer the current balance, interest rate and other loan terms from your existing mortgage to your new one. 

Do I Qualify?

Each lender has different restrictions and requirements. However, there are some general guidelines to be aware of:

• Some lenders require that contract exchanges and property settlements for both houses are done on the same day.
• Your lender may require your new property to be a specific type of home, depending on its location. Essentially they will not allow you to transfer your low-risk home loan to a property they deem high-risk.
• Depending on your lender, both your current and new property need to have at least the same value. Your substitution of security request may have a better chance of being approved if your new home has a higher property value than your old one.
• Most lenders require that for substitution of security loan, the amount of your loan doesn’t change. 
• You will be required to pay Lender’s Mortgage Insurance if your new mortgage is greater than 80% of your new property value.

How Do I Substitute My Security?

To substitute your security, you need to provide both of your contracts of sale. Then, the bank will perform valuations on both properties. If the valuation on your new property is too low, you will need to provide enough funds to complete the loan portability. Typically banks require either genuine savings or a gifted deposit from family members. Once the valuations are deemed acceptable, you will be issued new loan documents. Once you sign the documents, the bank can prepare the security substitution, which usually takes around a week.

If you are considering a security substitution for your new home, it is essential to consult a Mortgage Broker. Mortgage House is here to help. We know the lending process, and our team can help you decide whether a security substitution is right for you. Contact us today.