Portable Mortgage – Good Idea, Bad Idea?
What happens if you are on a five-year mortgage and after two years, you need to sell the new home? There are three options: porting the mortgage, having a mortgage assumption or breaking your mortgage. If you are moving to a different place in Canada, the most reasonable option is to port the mortgage.
Here are a few reasons why going portable makes sense.
Goodbye to Penalties and Higher Rates
You have a house with a $150,000 mortgage of five years at an interest rate of 2.7% and amortization period of 25 years. However, you have to shift from Toronto to Nova Scotia because of a job change. In the next few years, the interest rate may increase to 4%. If your mortgage is portable, you can avoid higher prevailing interest rates and hefty prepayment penalties.
While you may have to pay some fees for this transfer, everything else remains intact. The interest rate remains at 2.7% and your remaining term is still two years.
In the past, I have seen interest rates hover between 4% and 17%. When the rates are at 5%, they are more likely to increase than decline. With mortgage portability, an increase in rates does not affect you at all. In case they decline, you can refinance and take advantage of the prevailing rates.
Moving is Smooth
Portable mortgage offers the cheapest and easiest way to move. If you are working with a traditional mortgage, transferring from one home to another can be a headache. In 2004, I had to sell my house in downtown Toronto and pay off the mortgage before moving to the east coast which made the transition a lot tougher. I now have more information on portable mortgage options with a great mortgage broker.
Well, we can say so much about the benefits of portable mortgages, but there are also some obstacles.
Need to Stick to Conditions
Portability comes with a set of challenges and restrictions. For example, you must complete the process within a certain time-frame, which can be short. In Canada, this timeline is usually 3 months from the time you close your existing home.
Re-qualification A Common Requirement
For the port to be complete, you have to undergo an approval process that is essentially a re-qualification. Some of the information lenders ask or source for includes your income, credit history and information about the house.
The house has to fit the requirements set by the lender in terms of value. In case your financial status has changed over the years (maybe your credit score was affected by a late payment), you may miss a portable mortgage on this basis. Changing of jobs may also destabilize your income and affect your image in the eyes of lenders.
It is good to consider a portable mortgage in Canada, but porting may not always be a flawless path because of the reasons discussed here.
Even if your move is temporary, a portable mortgage is still relevant. Situations change-kids move on and new interests develop-and we don’t know what tomorrow holds. If you are looking to get a mortgage, ask the lender or mortgage broker whether it has a portable feature.