What Exactly Is a Portable Mortgage? And why should I care?
Is there any chance that at some point in the future you will want to sell your home in Port Elgin, for example, and move to a different one in Kincardine? Then you are going to want to read about portable mortgages.
Husband: “Honey, I know we need a bigger house but we still have 2 years left on our 5 year mortgage term. We probably have to wait. We don’t want to have to break our mortgage and pay the penalty. Penalties can be pretty big”
Wife: “You don’t listen at all do you! When we arranged our mortgage, they ensured we had great portability options. We can simply port our existing mortgage with minimal cost to the new property” Call Jim Cook this afternoon.
Husband: “yes, I forgot all about that! Glad you were listening!”
If you have been married for very long, you know most conversations don’t sound like this. However, ….
If you’re selling your home and purchasing a new one, you can “port” your mortgage. This simply means you can take your existing mortgage and transfer it to your next home. This usually avoid prepayment penalties. This will only work if you are staying within residential properties. If you are moving from residential property to a farm, it won’t work. If you are building new on your own land, it won’t work. However, if you are simply moving to another residential home, resale or new construction by a builder, then its absolutely worth exploring.
There are 3 different scenarios.
You need a larger mortgage for your next home. This is called a “port and increase”. You take your existing mortgage amount and rate to the new house. New money is added at current mortgage rates. Your payment then becomes a blend of the two amounts and rates.
You need a smaller mortgage for your next home – whether the house is smaller or not. This is a called a “port and decrease”. Your interest rate will remain the same. However, depending on the amount you’re decreasing, you could end up paying a penalty on any reduction above what you are allowed to do per year in lump sums.
Just like it sounds, you simply transfer your current mortgage to your new home with the same remaining rate, balance and terms. You make up the difference in price in cash.
Note – in all cases – you still need to put a minimum 5% down payment into the new home. This is not a technique to 100% finance your new purchase.
With mortgage rates still among the lowest in history, rates have nowhere to go but up. Ensuring your mortgage is portable gives you the flexibility to maintain your current rate and protects you from mortgage breakage penalties when moving.
Be wary when shopping for your mortgage. Many brokers and lenders often use interest rate to get you in the door. However, some of the lowest interest rate mortgages can be no frills products that may come without a portability option. That is why you should be feel comfortable in the expertise and objectives of your mortgage professional. Are they working for you or putting themselves first.
Yours in mortgages 🙂