However, selecting a hard and fast rate mortgage might be problematic in the event you resolve to sell your house and are forced to terminate your mortgage agreement mid-term. The penalties related to terminating a hard and fast rate mortgage might be very costly.
Fortunately, many mortgage lenders permit you to avoid penalties by transferring your mortgage, which suggests transferring your existing term and rate of interest to your latest property.
How does the transfer of a mortgage work and when does it make sense?
What is a mortgage transfer?
A mortgage transfer involves transferring your current mortgage to a brand new property if you move. Your existing mortgage rate and term will transfer along together with your current mortgage balance.
To qualify for a mortgage transfer, it’s essential to follow certain rules. For example, it’s essential to sell your house and buy a brand new one around the identical time — often inside 30 to 120 days, depending on the lender. Also, you possibly can’t transfer greater than your current mortgage amount. If you wish additional funds to purchase your next home, the brand new money can be subject to current rates of interest and added to the mortgage balance — but more on that later.
Most Canadian mortgage lenders offer the choice of portability, but not all. That’s why it is important to ascertain whether a possible lender offers this selection before taking out a brand new mortgage. After all, you never know when your plans might change and you may have to sell your house before your mortgage term ends.
When does a mortgage transfer make sense?
There are two essential explanation why it is advisable to transfer your mortgage moderately than breaking your contract and starting over. The first reason is to maintain your existing rate of interest whether it is lower than current mortgage rates. The second reason is to avoid breaking your mortgage early and incurring a costly penalty.
“A transfer is usually a good idea if your existing fixed mortgage rate is lower than current rates and you are moving before your mortgage maturity date,” explains Lyle Johnson, a mortgage broker in Winnipeg. “By keeping your existing mortgage, you avoid the prepayment penalties that would apply if you terminate your mortgage before the maturity date, while still keeping your low fixed rate.”
What about an adjustable-rate mortgage? Most adjustable-rate mortgages don’t offer a portability feature. (Note, nevertheless, that you might have the choice to convert to a hard and fast rate first after which port.) If you select to sell your house before the term is up, you will probably must break your contract and take out a brand new mortgage on the brand new property. However, the penalty for breaking an adjustable-rate mortgage is frequently equal to a few months’ interest in your outstanding balance, which is usually lower than a penalty on a fixed-rate mortgage.
