Are you planning to move to another property?
If so, it is good to be aware of the moving option of your current mortgage interest rate.
By taking this interest rate with you, your monthly costs will often be significantly lower than if you had to take
out a mortgage at the current interest rates.
How does the relocation scheme work?
When you took out your current mortgage, you agreed on an interest rate percentage as well as the term it is fixed for.
If you are going to sell the current home, when you pass at the notary, the mortgage will be repaid.
However, you are allowed to buy a new home and apply for a mortgage for this within the stipulated period in your agreement,
which is often 6 months but is longer with certain lenders. You can then continue the old terms of the interest rate and term in the new mortgage.
Example
You have taken out a €350,000 mortgage and the interest rate is fixed until 01-01-2040 at 2.5%.
You buy a new home for an amount of €550,000 and after contributing your surplus value from the sale of your current home,
you need a mortgage of €450,000.
You borrow €350,000 at 2.5% until 01-01-2040 as well as €100,000 at 4.5% with the interest rate fixed for 20 years.
If you want to make use of the relocation scheme, it is sometimes assumed that there is no need to apply for a mortgage because you already have a mortgage with the lender. This is incorrect because when you buy a new home, there is an entirely new application. This means that your income and the value of the new home should be sufficient to enable financing.
Do you and your partner both have mortgages on your homes and wish to buy a new home together?
Then only 1 person can choose to take advantage of the removal scheme.
How does the relocation scheme work if you first purchase a new home and later sell the current one?
The mortgage application for the new home should indicate that you wish to make use of the relocation scheme.
You will then receive a quote for your new mortgage with your current interest rate and, if you want a higher mortgage,
an additional amount at the current interest rates.
Your current mortgage rate is determined, among other things, on the basis of the ratio of your mortgage balance to the value
of the house as well as whether you have a mortgage with National Mortgage Guarantee (NHG).
With the new home, you may finance more or less in percentage terms compared to the current home or you may no longer be entitled to NHG.
The interest rate in your offer may therefore differ from the current interest rate you pay.
Example 1
You currently have a €300,000 mortgage with NHG at an interest rate of 2%.
You have bought a new home of €450,000 and wish to finance it with a €350,000 mortgage.
You wish to use the relocation facility and request a quote for the new mortgage.
As the new home cannot be financed with NHG, the bank offers you an interest rate of 2.3% because the new mortgage does not have NHG.
Example 2
You currently have a €450,000 mortgage at an interest rate of 3% where your mortgage is 60% of the house value.
You have bought a new home of €500,000 and wish to finance it with a €450,000 mortgage.
You wish to use the relocation facility and request a quote for the new mortgage.
As the new house is financed at 90% of the house value, the bank offers you an interest rate of 3.3% because the new mortgage
offers financing where more is borrowed of the house value in percentage terms compared to the current situation.
How does the relocation scheme work if you sell the current home and only later purchase a new one?
When you sell your home, the mortgage will be repaid.
You can continue the terms of the mortgage if you buy a new home.
Depending on each lender, this will include a term.
This varies from 6 months to 12 months. It is important to be aware of which term applies to you.
Some lenders also oblige you to inform them well before the actual date of sale of your house that you wish to make use of the removal facility.
If you do not do this in time, the entire removal facility will be cancelled.
For those lenders who wish to be informed in advance, it is stated that you will be informed no later than 30 days before the actual date of sale.
Are there any negative consequences of the removal facility?
You will often wish to continue the lower interest rate you have in order to have significantly lower monthly charges.
However, there can also be a downside to the relocation facility. If the interest rate you wish to move with you has a contract
term of less than 10 years then the lender will reduce your borrowing capacity.
This means you will often be able to borrow less than if you take out a mortgage at current interest rates.
It is therefore a good idea to have these consequences outlined by a mortgage adviser so that you cannot be surprised with a lower mortgage
than you expected. This negative effect can be solved with some lenders by opting for an interest rate mediation. In this, you take out a new interest
rate for the current mortgage where your low mortgage rate is averaged with current interest rates.
Conclusion
The relocation scheme is a great solution to have good affordable monthly expenses even with the new home to be bought.
Due to different conditions and requirements with lenders, it is recommended to discuss this option with your mortgage advisor
so that you are aware of the options.