A mortgage is one of those contracts where not paying attention to the fine print can really cost you later on. The terms of a mortgage can be quite specific and are not usually flexible. So, if you want to alter one or more of the terms of the home loan, you may need to completely refinance the mortgage. The existing mortgage is dissolved and a new one is created, often at the cost of thousands of dollars.
However, a portable or assumable mortgage provides the borrower with the option of carrying on the mortgage or passing it on to someone else. Often, the terms ‘portable’ and ‘assumable’ are used interchangeably. But, there are a number of differences between the two that can determine which mortgage type better suits your needs.
Portable mortgages give you the option of transferring a mortgage from one property to another, thereby allowing you to retain the terms. In the event that you sell your home, you can transfer your current mortgage over to the new property. Usually, there is no cost associated with the transfer. However, the mortgage will have to be registered under a different title with the new home, so ‘technically’, it isn’t the exact same mortgage.
The main advantage of this mortgage type is that you won’t have to pay closing costs on the new property, since you would have already paid the first time around. Closing costs can add up substantially, so this gives you the opportunity to increase your down payment on your new home.
Should you need additional funds when the transfer takes place (as a result of upgrading), be sure that you can combine the supplementary funds into your existing mortgage, or that you can manage these funds on the side.
Some lenders, such as ING Direct, have the portability function attached to all their mortgages.
If you are interested in maintaining the low mortgage rate that you currently have for your property, look into an assumable mortgage. The primary difference between an assumable mortgage and a portable one is that the former is passed on to the buyer of your home. This provides an attractive selling point if Canadian mortgage rates have increased since your mortgage was finalized. This mortgage option also allows the buyer to save on the legal costs that come with registering a new mortgage. Keep in mind that if your mortgage does not cover the full purchase price of the property, your buyer will have to be able to make up the difference with other sources of funding.
As a buyer of a property under an assumable mortgage, you need to be updated on all the details of the mortgage you will be taking over. This can include the lender, term, conditions, the mortgage rate and the amortization period. Don’t forget to compare current mortgages rates in Canada to find out if assuming a mortgage will actually save you money.
As a seller, ensure that your buyer is eligible to assume the mortgage or you can find yourself in a difficult situation. If your buyer is not eligible, ensure that you can get out of the mortgage agreement and find out if there are any penalties. The last thing you want is to be responsible for the mortgage debt even after you have sold your property.
Some portable and assumable mortgages come at the cost of a slightly higher interest rate. All factors considered, it is wise to weigh your options and consider the possibility of you selling your property in the short term. That being said, life can be unpredictable and you never know what is in store. Speak to your mortgage lender and find out what your options are regarding portable and assumable mortgages. If your current mortgage doesn’t meet your needs and you’re mortgage is coming up for renewal, don’t be afraid to indulge in some comparison shopping to find a mortgage product that does suit your needs and financial goals.