Changing The Mortgage You Already Have
Picture this: you bought your home a few years ago and like the majority of Canadians you locked into a 5-year mortgage term, but now it’s time for a change. Whether you’re thinking of selling, looking to take-out some home equity, or lower your mortgage payment; knowing how you can manage your existing mortgage to benefit your financial goals is key. And at the same time, you want to avoid as many out-of-pocket costs as you can.
Below are some of the terms you may hear when you’re exploring the avenues you can take to alter your existing mortgage at no cost or with as minimal costs as possible.
Porting Your Mortgage
Simply put, “porting” your mortgage means you can take your existing mortgage terms to a different property. If you’re thinking of selling your existing home and purchasing a new one right away, you can avoid a mortgage payout penalty by bringing your existing mortgage term with you instead of breaking it when you sell your property. If you need to increase the mortgage amount in order to buy the new more expensive home you can do that too by getting a “blended rate” mortgage. Keep in mind you are only “porting” the terms as a mortgage is only good for the property it is registered against and you will still have to qualify for the new purchase as well as visit the lawyer’s office. If your original mortgage was insured and you are again putting less than 20% down payment, you may also be able to “port” that insurance premium you already paid. *** many conditions do apply!***
As different lenders have different ways of facilitating the porting process, be sure the fine print of your ported mortgage is explained to you. For instance, you will be charged the payout penalty when the existing home is sold and you have a limited period of time depending on the lender to return to them for the new mortgage to receive a full or partial refund of that penalty.
It’s also important to be aware not all mortgages are portable and that too is dependent on which lender your mortgage is currently with. For instance, variable rate terms are not always portable which means you must convert to a fixed rate term before you can take it to the new property.
Another way to avoid a payout penalty when breaking your term at the time of a sale is to allow the new buyer to assume your existing mortgage. The new buyer will have to qualify with your existing lender as they would for a brand new mortgage and they too may also be able to “blend and increase” if they require additional funds to buy your home.
This option can be appealing if your existing mortgage rate is lower than the best mortgage rates available in today’s market or you may have an extended amortization which is no longer available today since implementation of the new rule changes.
Be sure to do your homework before you consider assumption as a way to avoid the payout penalty as some mortgage offerings available in the market today do not come with that option or there may be other restrictions.
Refinancing Your Mortgage
If you’re not moving but want to make changes to your existing mortgage, refinancing is always an option. Refinancing your mortgage essentially means you are breaking your existing mortgage term and obtaining a new one with some changes. Although this option usually involves some costs, it can also enable you to access home equity or lower your mortgage payments by allowing you to change your mortgage amount, interest rate and amortization period. There are a number of different refinance options available so when we get a call from a borrower thinking of refinancing we have 5 questions we ask them to ask their current lender. The answers to those questions basically allows us to determine if it makes sense to go with the same or a different lender for the new mortgage.
Switching Your Mortgage
There are a few big differences between “switching” your mortgage and “refinancing” your mortgage. When “switching” your mortgage the amount and amortization usually remain the same, however, the interest rate and lender where you obtain that rate changes, whereas with a refinance you can make any changes you want. The other major difference is a mortgage switch is usually free while there are costs associated with a refinance mortgage. And lastly, the mortgage amount under a refinance is limited to 80% of the value of the home while there is more leeway allowed under the switch product.
These are just a few basics about available options as each lender has their own guidelines while at the same time each borrower’s financial situation is unique. This article should not replace a conversation about your specific mortgage needs between you and your favorite Mortgage Professional and is only meant to be a conversation starter.