You may have to sell your home before your mortgage term is up. This can happen more often than you think, as personal circumstances like a new job or having your first child, can require you to make a change.
When selling your home, you’ll have three options: break your mortgage, port your mortgage, or have your mortgage assumed.
|What is it?||Cancel your mortgage agreement||Take your mortgage with you—with the same rates and terms—to a new property||When someone buys your current home, transfer your mortgage agreement to them|
|When should you do it?||You’re not buying another home, OR you can’t time the buy and sell in order to port, OR today’s rates are significantly lower than your current mortgage rate||You’re buying a new home and selling your current home simultaneously and your existing mortgage is favourable||Rates today are higher than your existing rate, you’re not buying a new home and the new buyer has agreed to assume your mortgage|
|What's the downside?||You’ll likely have to pay a significant prepayment penalty AND/OR if today’s rates are higher than your current rate, you lose out on monthly savings.||You have to time your buy and sell to occur in conjunction with one another AND some variable rate mortgages can’t be ported||New homebuyers lose out on mortgage flexibility and may need to be convinced|
As soon as you start thinking about selling your home and buying a new property, contact your lender to find out exactly what your penalty would be if you broke your mortgage early. This will be based on today’s timeline but can give you an idea to set your expectations.
Once you have an understanding of your break penalty, you can then ask your lender about your options for porting or assuming your mortgage.
Porting allows you to take your mortgage agreement from one property to another, complete with its associated rate and terms. You’re allowed to port your mortgage if you’re selling your property and buying a new one. And if your next home is more expensive than your last, you can speak with your lender about increasing the size of your ported mortgage.
The main reason you would port their mortgage is to avoid the large prepayment penalty that comes with breaking your mortgage term early. The fee can be substantial, so if you’re buying a new home, it can be better to port your mortgage to your new home.
You can also port your mortgage to take advantage of your current mortgage rate, if it’s lower than the rates available today. (However, if your rate is higher than today’s rates, you should see if paying a break penalty would cost less than sticking with your higher rate.)
That said, not all mortgages can be ported. Some lenders allow as little as 30 days to complete the port, which may not be enough time, should your buy and sell not align well in the same time period. Also, most variable-rate mortgages are not portable. The good news here is that the penalty to break a mortgage with a variable rate is usually 3 months’ interest. You typically see the largest break penalties on fixed-rate mortgages, when interest rates today are lower than when you signed your original mortgage.
It’s best to sit down with your mortgage broker and discuss porting as an option, before you start looking for a home.
If you’re selling your current home and don’t want to break your mortgage term, you could have your mortgage assumed by the new buyer of your home. This is only possible if the new buyer agrees to take on your mortgage. If your mortgage rates are below the current rates, the new buyer will likely be tempted to assume.
If there is a difference between the mortgage and the purchase price, however, the new buyer will have to pay you the difference. The new buyer can also work with a mortgage lender to increase the size of the assumed mortgage.
When having the new buyer assume your mortgage, here are key points to be sure of: