There are many terms you will hear during your mortgage process. Some terms will be straight forward and other terms may not be. Here are three important mortgage terms you should know. They are 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.
Learn more: Monoline lenders
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.
Mortgage brokers in Ottawa are here to answer any questions you may have about porting a mortgage. Also can can assist you with determining if this is an option you should have with your mortgage or not. Porting policies differ from lender to lender and usually are not detailed in the mortgage commitment. With that, having more information upfront from a mortgage broker is a great idea to help protect you in the future.
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.
Talk to an Ottawa mortgage broker today to see if your current mortgage is assumable of if you need a mortgage that is assumable.
Learn more: What is an Interest Rate Differential (IRD) and How is it Calculated?
Learn more: Ottawa Mortgage Brokers
Contact me today if you would like more information about prepayment, porting and assumable options.