Can you always transfer a mortgage?
31 octobre 2018
Category Blog
31 octobre 2018,
 0

The transfer of your mortgage to your new home or to the buyer of your home will no longer be a secret to you. Why do you need to transfer your mortgage? Can you borrow more? What are the pros and cons? How can you limit the risks?

 6 questions and answers about transferring a mortgage loan to another house

Can you always transfer a mortgage?

Did you know that in many cases, first-time homebuyers move to a new home before the end of a 5-year mortgage term? On average, these first-time homebuyers break their mortgage agreement after 3.5 years and pay penalty fees.

There is one solution: transferring your mortgage, also called porting your mortgage.

 

What does a mortgage transfer mean?

This is the porting or transfer of your mortgage (interest rate, terms of payment) related to the property you are leaving to the new home you purchased.

 

Is it always possible to transfer your mortgage?

Unfortunately, no.

Not all lenders offer this option. Thus, if there is any possibility that you will move during the repayment period of your loan,  ask your mortgage broker if your lender provides this service.

 

Why do you want to transfer your mortgage?

If the mortgage interest rate that you obtained when you bought the house is advantageous, you will definitely want to transfer it to your new house.

On the other hand, if the current interest rate is lower than the one you are currently paying, porting your mortgage to your new home will probably not interest you.

Important tip: You will need to consider the costs of breaking your mortgage contract when reviewing your options.

 

What if a loan larger than your current balance is required?

Generally, when you buy a new house, you must take out a loan amount that is greater than your current balance. If this situation applies to you, your lender will probably offer you a reasonable average rate that is between your current rate and the new loan.

It is actually a combination of the two (2) interest rates with an extension of the mortgage loan.

 

Example:

  • You have a mortgage balance of $125,000
  • The interest rate related to this loan: 3% (this is what you are paying now)
  • Cost of buying your new home: $175,000
  • Current market rate: 4%

As a result, the weighted average rate (blended and extension) offered by your lender would be around 3.32% for your mortgage loan.

 

Do all mortgage transfers have the same clauses?

No.

In fact, what differentiates the clauses related to the porting of a mortgage loan from different lenders mostly affects the time granted to complete the transfer of the mortgage loan.

If some lenders allow you 30 days (which may be restricted), others will give you 120 days. The latter is preferable because it gives you more time to do all the steps required with the sale/purchase of your new home.

 

What can you do if your loan is not portable and you need to move?

You will be required to pay the penalty as stipulated in your contract regarding termination of your loan.

If the interest rate is variable, your penalty will be three (3) months’ interest.

If your interest rate is fixed, the amount of your penalty is equivalent to three (3) months of the highest interest rate or the difference between interest rates.

The mandatory payment of thousands of dollars in penalty fees is the reason make sure that when you take out a new mortgage, your lender gives you the option to transfer your mortgage to your new home. This option must be written in your mortgage contract.

Nobody can predict the future. When buying your new house, you may plan to live there for a long time but what happens if there are changes in your career, your relationship with the co-owner, your children, etc.?

It is normal to consider the possibility of transferring your mortgage loan from the beginning when you sign up for your mortgage to save on thousands of dollars.

Ask your mortgage broker if what he is offering is portable to a new home.

To contact certified and reputable mortgage brokers, partners of Best Mortgage Quotes, our digital platform for online quotes, just fill out the form on this page to request for free quotes.

In no time, the best mortgage broker in your area will offer his services to present you with a quote that is most convenient to your situation and budget.

 

Porting your mortgage to a new buyer

If your mortgage is not transferable to your new house, it is also possible to port the mortgage to your buyer. Thus, the latter takes over the mortgage based on the terms and conditions of the contract and assumes your payments.

 

The pros and cons of transferring your mortgage to a new owner.

The advantages and disadvantages of a mortgage transfer to a buyer

The benefits of a mortgage transfer between individuals

Your buyer will be able to save on his monthly payments if the current market rate is higher.

For example:

  • Your mortgage balance is $200,000
  • The interest rate linked to this loan: 2.89%
  • You have 4 years remaining on a 5-year term
  • Your payments are $935.24
  • The market rate is: 4%
  • The monthly payments from your buyer would be $1,050.96

Your buyer could save $115.72/month for 4 years.

As a result, a buyer might be interested in buying your house quickly.

In addition, the buyer saves on notary fees because no mortgage contract is required.

You avoid the penalties of early repayment.

Excellent solution for a transfer between family members.

 

The disadvantages of a mortgage transfer between individuals

The responsibility of paying your mortgage is yours as long as it is not fully paid.

Thus, if your buyer stops paying the monthly mortgage fees, you will need to resume payments even if the house no longer belongs to you.

In addition, if your house is resold several times. And each homeowner transfers the mortgage loan to the next buyer, if the last buyer fails to pay the mortgage, the bank may claim a portion of the installments, plus fees.

Many lenders will only accept the porting of your mortgage if the interest rate is fixed.

The lender must accept your buyer’s mortgage application, even if you remain responsible for making the payments.

The amount of the mortgage and the downpayment, consequently, must be respected by the buyer. He will not be able to invest more (or less.).

Your risk tolerance must allow the possibility for you to repay the mortgage for the duration of the amortization period stated in your contract (usually between 20 and 30 years).

Remember:  your mortgage broker is a professional who is trained and supervised by the OACIQ.  Because of his expertise, he is the best person to assist you in your efforts and give you advice regarding the risks involved in the transfer of a mortgage loan between individuals.

Don’t hesitate to fill out the free online request form for quotes on this page to find the best mortgage rate for you with a mortgage broker in your area.

 

Tips to limit the risks of mortgage transfer to the new buyer

If a mortgage transfer between people seems interesting, you can reduce the risks associated with this solution.

It is likely that a written notice stating that your lender or financial institution agrees to release you from your mortgage debt may be provided to you if your buyer is a serious prospect. Try it! If your lender agrees to this arrangement, keep the letter in a secure place.

It is also possible to insert a clause in your contract of sale stipulating that at the end of the mortgage term, your buyer must be able to take out his own loan and release you from your mortgage debt. This condition is not a guarantee.

Your sales contract should mention that your buyer must release you from your mortgage debt before selling the house.

Your lender can also help by raising the amount of your mortgage. It is worth informing you.

If a relocation or any sudden change occurs before the expiry of your mortgage term, don’t hesitate to consider together with your mortgage broker the transfer of your mortgage to a new home or to a future buyer.

With the help of a mortgage professional, evaluate the cost of the penalties for breaking your mortgage and compare it with how much you can save by making a mortgage transfer to keep your current interest rate.

Transfer your mortgage to save substantially on your interest rate.

Save money now by transferring your mortgage loan

Why should you pay penalty fees by transferring your mortgage before the end of its term?

It is sometimes possible to keep your current interest rate and even borrow more.

Speak to a partner mortgage broker of Best Mortgage Quotes to guide you in the process of transferring a mortgage as a seller and also as a buyer.

Experienced mortgage brokers who have joined our digital platform for the comparison of quotes (and prices) online were handpicked based on strict selection criteria: qualifications, professional liability insurance, number of years of experience, compliance with the mandatory code of ethics, etc.

For your mortgage transfer, turn to the key person you need. Contact your mortgage broker.

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