Portable loans

By Nila Sweeney
Q. I would like to know if there is such a thing as transferring loans. What I mean by that is if you sell your house for a certain price and the house you want is the same price, can you just transfer the loan across and if so what lenders might do this?
We’re in a situation where we have a line of credit of $80,000 for a deposit on an investment property in Melbourne. As things didn’t work out we had to sell it at a loss. Now we have a mortgage of $300,000 plus the line of credit of $80,000.
We’d like to sell up so we can get out of this mess, but currently our house would be lucky to fetch $300,000 – leaving us with no deposit.
As we’re paying our bills on time, could the lender pay out both the loans and give us another for the same amount?

A. Firstly, many loans are “portable” or able to be transferred to another property provided the new or substitute property is acceptable to the lender and its value is equal to or more than the value of the existing property. Lenders may seek a nominal fee for the processing of substitution (around $200) and there will also be valuation and legal costs. If I understand your circumstances correctly you currently owe a total of $380,000 to your lender and this is secured over your home property worth only $300,000. I am assuming that your home loan lender advanced you the $80,000 for the deposit on your investment purchase and secured this by way of a variation of the existing first mortgage at a time when your home property was worth around $420,000. Selling your home now for $300,000 not only leaves you with no deposit but also with a debt still owing of $80,000 to the bank. Selling and buying another property is only going to incur more costs in marketing, legal and government duties. I doubt very much whether in these circumstances your lender will entertain any substitution of security. You should discuss your options with your accountant or solicitor to determine the best way out of your financial difficulties.

Related: Home Loan Calculator