When you purchase a new home, you likely plan to live there for years. However, life is unpredictable and a number of situations can arise causing you to have to move sooner than originally planned. If you don’t plan properly, moving from one home to another can wind up costing you more than you thought.
As a homeowner, one way to avoid these additional costs is by getting a mortgage transfer. In short, a mortgage transfer means you will transfer the debt you owe the bank from your old home to your new one.
Mortgage transfers are especially beneficial if you plan to buy a new spec home. This is because spec homes have already been completed, or are at least close to being completed, and their value can be easily assessed.
Below are some further reasons as to why you may want to purchase your new spec home using a mortgage transfer.
1. Avoid Penalties
The most common way to lose money is by choosing not to transfer your mortgage because of a lower interest rate on a new mortgage. The problem is that most lenders charge a penalty for breaking a mortgage before the term expires (generally before the five year mark).
For homeowners who are under a variable rate mortgage, their penalty will be equal to three months of interest, and for those who are in a fixed rate mortgage, the penalty will be the greater of either three months of interest or the interest rate differential. This is why having the option to port is immensely important.
By porting or transferring the mortgage, you can avoid paying these penalties which could negate any gains from the sale of your current home.
2. Keep Your Current Interest Rate
Due to market fluctuations, the interest rate for a new home may be higher than they were when you purchased your existing home.
Porting your existing mortgage to your new home allows you to keep your current interest rate or, in some instances, improve your interest rate overall.
If your financial situation has improved since you purchased your current home and you have consistently made your payments on time, your lender may also be willing to reduce your rate. It's something worth checking out!
3. Avoid the Cost of a New Mortgage
There are a number of fees and costs associated with taking out a new mortgage on a home, such as mortgage insurance and closing costs. In most cases, transferring your mortgage means these charges can be mitigated, or avoided altogether.
Can Anyone Port Their Mortgage?
Unfortunately, not everyone will be able to transfer their mortgage to their new home. While some lenders allow mortgages to be transferred, others do not. This is something that new home buyers should verify when choosing a lender.
Do All Lenders Offer the Same Porting Clause?
- Different lenders mean different transfer clauses. Most lenders vary in how much time they will give you to sell your current home and close on the new one. This time frame can be anywhere between 30 to 120 days.
- A 30-day allotment can be very tight depending on the circumstances surrounding the new home. However, when purchasing a spec home, the structure is already complete resulting in a shorter wait time.
- When you request that your mortgage be transferred, you will have to apply again in order to be re-qualified. Keep in mind that changes in employment, earning less or accrued debt may affect the process.
If you and your family are considering a new spec home, transferring your mortgage can save you time, stress and money. Be sure to speak with your builder’s preferred lender for further information and make financing your new home as seamless as possible.