Tuesday, 9 June 2015

Mortgage Portability

How many times do you plan on moving in your lifetime? Statistics show that people will now move an average of 11-12 times in their lives. This is a pretty startling statistic that reminds us that our "Forever Home" may not always be forever.

The great news is I can teach you about a great feature called Portability which will allow you the ability to take your mortgage with you when you move. "But why do I want to take my mortgage with me?" you say. Well, that's because the feature of portability usually means you avoid paying any steep pre-payment penalties like the Interest Rate Differential or 3 Months interest penalty. Not having to pay a penalty like this when you move could save you thousands of dollars.

An important thing to remember when porting your mortgage is that most lenders will expect you you to pay any pre-payment penalties as soon as your first home is sold. They will then give you the amounts due back as a refund when your new home purchase is completed. This is critical to remember as you must budget to have that money out of pocket for a small period of time.

Portability can work to your benefit in 3 different scenarios:

(P.S. If you want to brush up on your mortgage terminology, find my Glossary HERE)

Port with a decreased mortgage amount


This is often the case when downsizing or moving from a more expensive city to a community with lower property values. What this means is that your new mortgage amount will be less than the total mortgage owing when you sell your first property. While most lenders will allow you to port your mortgage and decrease the total owing, there will usually be a penalty to pay based on the difference between the two mortgages. This should be discussed with your broker and lender so that you know how much of a penalty you will have to pay when everything is completed.

In this scenario, your interest rate and term will remain the same, but your mortgage amount will decrease.

Port with the same mortgage amount


This is an unusual situation but it does occur occasionally. In this case, your total mortgage amount will stay the same based on the property you are buying. What is tricky here is that although the amounts are the same, you will again still have to pay the penalties and wait for the refund to come in from your lender once you have closed on your new property.

Your interest rate and term will remain the same, as will your total mortgage amount.

Port with an increased mortgage amount


This is a very common scenario for people who are either relocating or are looking for a larger house to accommodate a growing family. When all is said and done, your new mortgage amount will be the original mortgage amount, plus any extra needed to purchase the new, more expensive property.

When increasing the amount of your mortgage, your new interest rate will be 'blended'. What happens with a blended interest rate is that the original mortgage amount stays at your original mortgage rate, but any new money(the increased amount) is loaned to you at 'current' rates. This can be either higher or lower than your existing rate but should be discussed with your Kamloops Mortgage Broker so you understand the consequences of blending. This is a complicated calculation to make, but one you should understand fully to determine if porting is the right option for you in this case.

With this option your term will remain the same, but your total mortgage amount will increase.

The "Blend and Extend" option


Some lenders will allow you to blend interest rates, and extend to a longer term. This can be beneficial if you feel you have a good rate and product and would like to stay locked in with that rate for a greater period of time. In my experience, this can be a good tactic to consider when contemplating an early mortgage renewal.

Whether you are increasing your mortgage amount or keeping it the same, this option is a good way to negotiate a better rate with your current lender while avoiding the cost of pre-payment penalties.


How Do I know What Is My Best Option?


There are a variety of Calculators on my website you can use to compare these options. And when you're ready for a more accurate look, Schedule and Appointment with me and I will be happy to go over your options in great detail.

If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest. Also visit my website www.ryanWsmith.ca to Apply Now for your mortgage!


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