Here are three important mortgage terms you should know. They are prepayment, porting and assumable.
Prepayment, porting and assumable
Prepayment is the amount that a lender will allow you to pay, above your regular payments, that will go directly to the principal.
Many lenders will allow a client to increase their regular payments. Also to put lump sum amounts onto the mortgage. However if your goal is to pay your mortgage off faster then it’s important to know the different prepayment options this with lenders. Some lenders will only allow an extra payment on the mortgage anniversary date. Others have higher minimum payment amounts such as $1000 as opposed to other lenders with as little as $100.
Most major banks will allow a client to pay a lump sum of 10% to 15% annually. This amount is based on the original mortgage amount. Most monoline lenders will allow 15% to 20% annual lump sums.
Porting a mortgage is where during the mortgage term you move the mortgage to another house. For example, if you have a 5 year fixed term but outgrow your house after three years. In this case, you would move your mortgage to the new house and carry out the remaining two years left there.
It’s important to note that you have to qualify for the ported mortgage so if there is a transition in your life and finances such as a job loss, credit challenges and increased debt, that may affect your application.
Also, if needing new funds on the next property, some lenders have restrictions so it good to have a mortgage that will allow flexibility, if you feel you may need to port and increase in the future.
If you need to port the mortgage and decrease it, there may be a penalty, depending on the amount of the decrease.
The two main goals with porting a mortgage are you hold onto your fixed rate and to avoid a penalty.
Assuming a mortgage or having someone assume yours may come up less often. An example of when this could happen is if a family member took the mortgage over from you. You may consider this if you ran into financial hardship for example. Another example would be if you have a really low rate and do not need to port your mortgage when selling. In this case you could offer your mortgage and rate to the possible buyer as an incentive.
The goal with assuming the mortgage or having someone assume yours is to avoid a penalty
The person that wants to assume the mortgage would need to be approved by the lender. Also, not all lenders offer an assumable option.
Contact me today if you would like more information about prepayment, porting and assumable options.