Substitution of security: how to swap the security property on your home loan
Substitution of security is when you swap your existing security property for a new one. This usually happens when you sell your home and buy another. A security swap may also be possible if you own another property outright and want to secure your home loan against that instead of your existing security property.
What’s the difference between substitution of security and refinancing?
With a security substitution you keep the same loan, but change the property it’s secured against. When you refinance you change to a new loan, but you may keep the same security property. While there are costs involved, security substitution generally comes with fewer fees than refinancing and may be a more convenient option, especially if you’re happy with your current loan.
With a security swap you don’t have to find a new lender or submit a new application so it’s usually faster and involves less paperwork than refinancing.
Can I do a security swap with a Bluestone home loan?
Before we can approve a security substitution you’ll need to give us a few details about the new property so we can make sure it’s suitable. Once we’ve approved the substitution, we’ll pass the information to our solicitors who will prepare the paperwork and send it over to you.
Read on to find out more about swapping your security with a Bluestone home loan.
Substitution of security – the process
First, you’ll need to contact us with the approximate value of your new property. We’ll check if your new property is in a location that we can lend to and that it fits our criteria.
We suggest you have a cooling off period in your contract of sale in case we’re not able to substitute your new property as security – it’s rare but it can happen.
To be acceptable, your new security property needs to be:
- No more than 10 floors high (if a unit)
- In a postcode location that we lend in
- An existing building (we don’t currently do construction loans).
Keep the same loan to value ratio (LVR)
Once we’ve checked the property fits our criteria, we need to calculate if there will be any changes to your LVR.
The LVR is the percentage of the total property value you are borrowing. Because your original loan was approved for a specific LVR, it’s important that you maintain the same LVR or less when you swap your security.
You may need to make an extra payment (called a reduction payment) if your new property is worth more than your previous one or if the balance of your loan compared to the value of your incoming property will result in a higher LVR. This payment is to reduce your principal loan amount and bring your LVR back in line with your original loan.
Keep your loan type the same
If your current home is owner-occupied, your new property will also need to be owner-occupied. If your existing loan is an investment loan, your new loan will need to be an investment loan. We’re not able to do security substitutions with a different type of loan as this would require a new loan assessment rather than a simple switch.
Substitution of security – next steps
Once we’ve confirmed your new property type and location are acceptable and the LVR is likely to stay the same or less, we’ll need a more in depth property assessment and valuation.
We’ll ask you to complete our discharge authority form and give us the details of your outgoing and incoming property. We may also need to see a copy of the contract of sale for the new property.
We will arrange a valuation of the incoming property at your cost. During the valuation, the valuer will go to the incoming property, make an assessment and send us a report. Once we receive the valuation report our consent and lending managers will review it and make a final decision on whether to approve the security substitution.
Depending on the results of the report, there may be a few extra insurance requirements. For example, if your incoming property is in a flood-prone area, you may need to show proof that you have flood coverage before we can approve the substitution.
2. Discharging the existing property
When your substitution has been approved, we will instruct our trustees to get ready to discharge your mortgage on the outgoing property. Once the relevant documentation has been prepared, we will then prepare the documentation for the security substitution and settlement of your incoming property.
We’ll send you the documents to sign and return to our solicitors along with any other documentation required – most often this will be a certificate of currency for your insurance.
Once everything has been signed and returned, we will book in the settlement for your new property. If you need to reduce your principal loan amount to maintain your LVR, we’ll send the reduction amount to our solicitors at least two days before settlement.
After settlement, we’ll be notified that everything is complete so we can discharge the outgoing property and swap it over with the new property.
What fees do I have to pay?
With a security substitution you will need to cover all the additional costs of buying and selling your property yourself. These costs include:
- Real estate agent costs
- Stamp duty
- Any reduction to the current loan balance
- Break cost if you are on a fixed rate home loan and the amount is reduced
- Legal fees
- Substitution fees
- $390 consent fee
- $250 security discharge fee
- Valuation cost for incoming property.
How to get started
If you’re considering a substitution of security on your Bluestone home loan, call our customer support team on 13 25 83 to get started.