Have high interest rates been turning you off?
Sellers & Buyers, what if we can turn back the clock and gain access to more competitive rates?
Let’s reach into the shed and find two tools that allow us to sidestep this global problem.
- Homeowners who are selling and buying can PORT (aka transfer) their existing mortgage.
- First time home buyers can ASSUME a mortgage.
- Porting Your Mortgage
- It is the process of transferring your existing mortgage (including its current rate and terms), from one property to another.
- A useful tool for property owners looking to expand their family, relocate, or who are looking to break their mortgage without paying penalty fees
- Not all mortgages are built the same; you need to be eligible.
- Some lenders allow mortgage porting, while others do not. If you’re planning to move home during the term of a mortgage, this is a very important feature to have. A mortgage broker will be able to tell you which lenders are portable.
- Most variable-rate mortgages can’t be ported. The amount of time you have to complete the port, which is usually between 30 and 120 days, also varies among lenders. Some will allow just 30 days, which may be tight in some circumstances. But 120 days is usually enough time for someone to complete the sale of their old property and complete the purchase of their new home.
- You’re only allowed to port your mortgage if you’re purchasing a new property at the same time that you’re selling your old one.
- Don’t worry if the mortgage you’ll need for the new property will be larger – that’s very common when porting a mortgage. Your lender will offer you what’s called a blend and extend. This is essentially a weighted average of the existing mortgage and interest rate, and the new money required at a current mortgage rate.
- Assuming a mortgage
- An assumable mortgage allows a buyer to assume the current principal balance, interest rate, repayment period and any other contractual terms of the seller’s mortgage. Rather than going through the rigorous process of obtaining a home loan from the bank, a buyer can take over an existing mortgage.
- An assumable mortgage becomes an attractive option for a home buyer when interest rates are rising, or have risen significantly during the term of the mortgage.
- Most fixed-rate mortgages can be assumed, while variable-rate and home equity lines of credit cannot.
- The purchaser who wishes to assume an existing mortgage will still have to qualify for the mortgage in the usual manner, and the mortgage holder – the bank, trust company or other lender – will have to approve the transfer of the mortgage before the seller will be released from his or her obligations under the mortgage.
- If you’re the buyer and the seller has a significant amount of equity built up in the home, you will either have to make a large down payment or secure a second mortgage for the balance not being covered by the existing mortgage. This could pose a problem if the two lenders don’t cooperate with each other. Having two loans also increases the likelihood of default.
- The most important things for you to be sure of when someone wants to assume your mortgage are: 1) that the buyer can be approved for the financing, and 2) that all of your responsibility is stripped from your original mortgage loan agreement. Even after the buyer has assumed your mortgage, the lender can still hold you responsible for the mortgage if the buyer were to default on the loan. Only after 12 months of consecutive payments made by the buyer will you, the seller, be off the hook.
If you’re the seller and you’re willing to have someone assume your mortgage, then you may be able to get a better price for your home and could wind up with a very different selection of potential buyers. If you’re looking to downsize but you still have several years left on your term, you can also avoid the prepayment fees with this process.
If you’re the buyer, when current interest rates are higher than an existing mortgage’s rate, assuming a loan could very much be in your favour.
You have questions? We’ll put you in contact with knowledgeable and reliable pros.
We like to think that the GB shed has a tool for every concern.