Would you like to sell your current mortgage property and replace it with a new one? But you might be wondering what will happen to your existing terms, right? Well, don’t worry.
There is a way you can choose where you don’t have to suffer from any losses—it is porting a mortgage. Depending on the current mortgage terms, you can transfer it to your new property.
So, let’s try to understand what a porting mortgage is, how it works and what factors you need to consider. Let’s get started!
What does porting a mortgage mean?
Porting or transferring your mortgage allows you to carry your existing mortgage and transfer it to a new property.
All of the mortgage terms and conditions like your rate of interest and prepayment benefits will also retain the same that you negotiated initially. It is helpful for people who want to sell their old properly while purchasing a new one and if the current interest rate is higher than what you negotiated for your existing mortgage.
Your lender allows you to blend and extend your ported mortgage when you end up purchasing an expensive property that requires a big mortgage than what you currently afford.
Moreover, you don’t have to pay any penalty as you are not breaking the existing mortgage. It means that if the value of your new property is lower than the current mortgage, a prepayment fee will add to your portable mortgage.
You can check the penalty-related calculation at this site.
How does this portable mortgage work?
The first thing you should know, many brokers allow you for a portable mortgage but not all. It basically depends on fixed rate mortgages and variable rate mortgages. Fixed-rate mortgages are portable. But it is not applicable for most variable-rate mortgages unless it is converted into a fixed-rate first.
If you buy a big property and need a large mortgage, in that case, the lender will re-qualify your current status. Like your current income, debt load, and other assets.
If you fulfil their criteria, it will not create any problem to port things over. But if they show concern about your debt or the value of the new house—the lenders will not extend the full amount you require.
What are the pros and cons of porting mortgages?
Many house owners assume that a portable mortgage is the best option when selling an old property and buying a new one, while it is true in many cases, not all the time. So, let’s take a quick look at the pros and cons of a portable mortgage,
Pros
Favorable terms
If your existing mortgage has good terms, there is no reason to let them go. Instead, look to transfer it to the new property and take advantage of their favorable terms.
Low monthly fees
If the monthly interest rates have gone up since you negotiated your last deal, the blended rates of the portable mortgage will mean you have to worry less about your budget. A blended rate is the sum of existing and new rates and then divided by two. It results in a budget-friendly combination.
No penalties
As you are just transferring your mortgage instead of breaking it, you don’t need to pay any penalty. Prepayment fees are not required unless you lower your mortgage balance.
Cons
You may get better rates
There may be a better rate available from another lender than what you are getting from your current lender.
Limited time
Your lender will offer only 30 to 120 days for the portable mortgage. During this period, you have to sell your old property while purchasing a new one. Quite difficult.
Should you port your mortgage?
Just do simple math when you need to decide whether you should choose ported mortgage or not.
Suppose your current remaining mortgage balance is $400,000. And you pay a fixed rate of 2%. Now the purchasing value of your new property is $500,000 with a current rate of interest of 3%. It means the additional amount you require is $100,000.
So, if you choose the portable mortgage and apply that blended rate, the interest rate will decline between 2 to 3%.
Another way is to break your existing mortgage and pay the penalties. Then you can go for a new lender who may offer you a low interest than what you got from the blend-and-extend mortgage.
Bottom line
A portable mortgage is the best option to simplify your purchasing process and is budget-friendly as well. But sometimes, it also comes with challenges that everyone can’t meet. So, the right choice is to understand how this portable mortgage works and take the decision for yourself and your loved ones.
