Portable Mortgages vs. Assumable Mortgages

Alyssa Furtado
by Alyssa Furtado September 6, 2011 / No Comments

The conditions associated with a mortgage are very specific and often not flexible. So if a borrower wants to change one or more of the terms of the mortgage loan, he or she would need to refinance the mortgage, thereby creating a completely new mortgage. However, with a portable or assumable mortgage, you can carry on your mortgage or pass it on depending on where your interests lie.

Portable Mortgages

Portable MortgagesPortable mortgages allow you to transfer a mortgage from one property to another, allowing you to hold on to those favorable terms that you do not wish to part with. You can sell your home and still preserve the current mortgage. There is usually no penalty or cost associated with this transfer. The mortgage will be registered under a different title with the new property, so for all intents and purposes, it isn’t identical.

A big advantage of this type of mortgage is that you do not have to pay closing costs on the new property, as you would have already paid for them. This can allow you to substantially increase your down payment on your new home.

In the event that you need additional funds for when you transfer over, ensure that there is a means of combining the supplementary funds into your existing mortgage, or that you can manage these funds on the side.

Assumable Mortgage

If you are interested in retaining the low mortgage rate that you currently have, you should look into an assumable mortgage. The distinction between an assumable mortgage and a portable mortgage is that the former is passed on to the buyer of your home. This can be a very attractive selling point if Canadian mortgage rates have increased since your mortgage was established. This mortgage also allows the buyer to save on the legal costs of registering a new mortgage.

The drawback is that if your mortgage does not cover the full price of the property, the buyer will have to make up the difference with some other source of funding.

As a buyer, you need to find out about the details of the mortgage you will be taking over- the term,conditions, the mortgage rate and the amortization period to name a few. Compare current mortgages rates in Canada to find out if assuming a mortgage will translate into savings.

As a seller, you need to ensure that your buyer is eligible to assume the mortgage. Otherwise you can find yourself in a difficult situation. If your buyer is not eligible, you need to ensure that you can get out of the mortgage agreement. You don’t want to be responsible for the debt even after you have sold your house.

categories: Mortgages