But first, is your Mortgage Portable?
In a changing market, the option to assume or port a mortgage can be a real advantage. I am certainly no mortgage broker but in my business I learn about these terms each day.
With rates changing so rapidly, buyers are under more pressure than normal when shopping for a home. They worry that if they don't find a home in time, they may not qualify for the same amount after the interest rates have increased. If they already have a mortgage, there is way to port that mortgage to the new property.
This reason this is interesting lately is because if an owner is to pay off their mortgage anytime during the term of the mortgage (generally a 5-year term), they will be required to pay a pre-payment penalty and usually it's a significant one. The amount varies for each mortgage but it can be upwards of thousands of dollars which is why people try to avoid paying it (understandably). This penalty is in place to prevent home owners from switching lenders whenever they feel like trying to secure a better rate.
Porting the mortgage allows an existing clients mortgage to be transferred on to the clients new home they are purchasing without triggering that penalty. To compensate for the penalty, and since interest rates have changed from the time of the first mortgage to the time of the new mortgage, lenders will "blend" the two rates. Usually the amount needs to be topped up to pay for the new home so I presume a calculation takes place to determine where that rate lands between the old and the new.
Not all mortgages are portable and sometimes it can make more sense to pay the penalty and "break" the current mortgage and start fresh. These are things you'll want to discuss with your mortgage broker to determine what's best for you.
Next week we'll talk about assuming a mortgage and how it can benefit a buyer and seller.