Choosing between a portable or assumable mortgage can significantly impact your financial situation.
A portable mortgage permits you to transfer your mortgage to a new property, while an assumable mortgage enables a buyer to assume the existing mortgage on a property. In this blog, we’re on a mission to help you find that perfect mortgage fit for your unique needs. Let’s buckle up and get started on this mortgage adventure!
What is a Portable Mortgage?
Portable mortgages are a strategic financial tool that empowers homeowners with unprecedented flexibility. It is a mortgage that can be seamlessly moved from one property to another without incurring penalties or complicated procedures. You can take your existing mortgage if you sell your current home and purchase a new one. Unlike conventional mortgages that tie you down to a specific property, portable mortgages give you the upper hand in a dynamic real estate market. They enable you to capitalize on favorable interest rates, avoid hefty prepayment charges, and save valuable time when transitioning to a new property. You retain the advantages you’ve already secured by keeping your existing mortgage terms intact. Portable mortgages underscore financial freedom, allowing you to adapt to life’s changes without the hassle of renegotiating mortgage terms or facing high costs. With this robust option, you maintain control over your financial future while sidestepping potential pitfalls. Embrace the empowerment of portable mortgages – where your mortgage moves with you, ensuring your financial journey remains assertively in your hands. Now let’s move to understand the pros and cons of portable mortgages:
Pros and Cons of Portable Mortgage
| Pros: | Cons: |
| No Penalties: One of the biggest advantages is that you won’t be hit with penalties. That means you can move without worrying about extra fees eating into your budget. | One-Time Deal: Remember, you can only do the porting once. Make sure you’re moving to your dream home because this move is like a “one-time only” coupon. |
| Money-Saver: Who doesn’t love saving money? With a portable mortgage, you’ll save on those bothersome closing costs that sneak up on you. | Price Discrepancy for Second Home: Opting for a portable mortgage might not be advantageous if you plan to buy a second home at a significantly higher price than your existing one. The mortgage amount may fall short of covering the higher cost, leading to a financial gap that you’ll need to address separately. |
| Less Hassle: Imagine skipping the administrative headache of getting a new mortgage. With portability, you’re skipping the lines and going straight to the good stuff. | Moving is indeed a significant undertaking that shouldn’t be taken lightly: Despite the convenience of a portable mortgage, it is important to acknowledge that moving is still a big deal. In certain situations, it may be more practical to stay put until your mortgage term expires. |
| No Negotiation Needed: Moving homes can be chaotic enough. With a portable mortgage, there’s no need to haggle over mortgage terms all over again. Your terms stay put. | Limited Relocation Flexibility: A portable mortgage might not be ideal if you need to relocate frequently, such as every three years. These mortgages usually allow for only one transfer, making subsequent relocations a cumbersome process involving applying for a new or a second mortgage. |
| Maintained Credit Score: Transferring a mortgage doesn’t trigger a new credit application, so your credit score remains unaffected. This can be important for maintaining good credit health. | Higher Interest Rate: A notable drawback of portable mortgages is the typically higher interest rate than regular mortgages. This means that if you’re uncertain about your future relocations, you might end up paying more in interest over time, making it a relatively costlier option. |
Are all the mortgages portable?
While many mortgages claim to be portable, it’s essential to know that the reality can get tricky. Some mainstream lenders, for instance, won’t let you transfer a variable-rate mortgage. Also, when moving, most lenders will ask you to qualify again for your current mortgage, and your new home better meets their rules. If you don’t meet the requirements for your ported mortgage, they might ask you to refinance instead. Refinancing will end your current mortgage agreement and add an inconvenient prepayment penalty. These penalties can be a real punch to your wallet for fixed-rate mortgages.
Assumable Mortgage Meaning
An assumable mortgage is a unique arrangement where the responsibility for the mortgage is passed from the original homeowner to the new buyer when the home is sold. In simple terms, if you have a home with a mortgage and decide to sell, an assumable mortgage allows the buyer to take over your existing mortgage. This can be a pretty appealing feature, particularly if the existing mortgage rates are higher than the rate you locked in when you got your mortgage. The new buyer inherits your lower interest rate, which can save them a bundle in the long run. Plus, assuming your mortgage means they can dodge the legal fees of starting a new mortgage from scratch. However, there’s a catch. Assumable mortgages come with their fair share of downsides, and the extra effort involved might not be worth it for both the folks selling the home and the mortgage lenders. That’s why assumable mortgages are rare, especially in Canada. It’s like a unique mortgage option that’s there, but not everyone’s going for it.
Pros and Cons of Assumable Mortgages
Pros: Cons:
| Flexibility: Assumable mortgages offer great flexibility to both buyers and sellers. They allow the buyer to take over the existing mortgage with the same interest rate and terms, which can be beneficial in a rising interest rate environment. | Seller Responsibility: In an assumable mortgage, the seller remains partially responsible for the mortgage until it is fully paid off or released. If the buyer defaults on the mortgage, the seller may still be held accountable and face financial repercussions. |
| Lower Closing Costs: Assuming an existing mortgage can save the buyer money by reducing closing costs. Since the buyer is taking over the current mortgage, they won’t have to pay for a new mortgage application, appraisal, or legal fees associated with securing a new mortgage. | Limited Availability: Assumable mortgages are less common in the Canadian mortgage market than they once were. Many lenders have discontinued this option, meaning finding a property with an assumable mortgage may take time and effort. |
| Lower Interest Rate: If the original mortgage has a lower interest rate than what is currently available, assuming the mortgage can help the buyer secure a more favourable rate, resulting in significant long-term savings. | Higher Purchase Price: When buying a property with an assumable mortgage, the purchase price may be higher than similar properties on the market. This is because the seller may factor in the benefits of an assumable mortgage when determining the selling price. |
| Faster Approval Process: The approval process can be expedited since the mortgage assumption process bypasses the need for a new mortgage application. This can be particularly advantageous when time is of the essence, such as when purchasing a new home. | Restriction on Mortgage Terms: When assuming a mortgage, the buyer is bound by the terms and conditions of the existing mortgage. This means they may not have the flexibility to negotiate terms that align with their financial needs or goals. |
The Bottom Line
Choosing between a portable mortgage and an assumable mortgage demands careful evaluation. Understanding the pros and cons is vital for an informed decision that aligns with your financial situation and long-term goals. To arrive at the optimal decision, consider these aspects and seek advice from professionals like us. At Pegasus, we offer a comprehensive solution for all your mortgage requirements, serving as your one-stop destination.
