Prepayment, Portability and Assumability
One of the most common questions we get is about mortgage prepayments. The conditions vary from lender to lender but the nice thing about prepayments is that you can pay a little more every year if you want to pay off your mortage faster. A great way to do this is through prepayments.
They’re always something to ask your broker about because each lender is very different. You can always do an increase on your payments and that means that you pay a little bit more each week or each month when you make your mortgage payment. You can also make a lump sum payment. Perhaps you get a bonus every year or you get a lot of Christmas money. You can just throw that on your mortgage. It goes right on the principle so you’re not paying interest on those extra funds. Paying a big chunk at once also means that a higher percentage of future payments will also go towards the principle.
Portability means that if you sell your house and you want to take your current mortgage and move it to your new house you can. The one thing about portability that we always have to keep in mind is that we can’t decrease the mortgage amount but we can do a little bit of an increase often through a second mortgage or an increase we call a blend and extend. It just gives you the flexibility of moving the mortgage from one property to the next property. It also gives you the flexibility of being in control of where you mortgage is going and not having to break your mortgage every time you decide to move.
Moving a mortgage to a new property avoids things like discharge fees, the legal cost of registering a new mortgage and the possibly of a higher interest rate. It’s great to be able to keep that rate for the full term rather than having to break and pay those penalties half way through.
Assuming a mortgage comes into play more often where there are family ties. Say your parents have a mortgage and you move into that house. Rather than you going out and getting a new mortgage and your parents having to pay those discharge fees, you have the ability to assume their existing mortgage at that current rate. All you have to do is apply and make sure you can actually afford the mortgage at what they’re paying. You have to be able to be approved on the remaining balance on the mortgage just like you would on any other mortgage. Just because your parents have an eight hundred thousand dollar mortgage doesn’t mean you’ll be able to take that over.