How a Portable Mortgage Can Prove Beneficial
Mortgage loans, which can be transferred, are known as portable mortgage loans. This type of mortgage allows the borrower to shift their mortgage to a different property. The lender usually remains the same, but there is generally a transfer fee involved. The terms of the mortgage remains the same as it was even before the transfer.
An example of a portable mortgage
Assume you have a house with a mortgage of $250,000, at an interest rate of 4 percent for a 5 year period and an amortization period of 30 years. At the end of the second year you have to relocate to another city for some reason. Since the time you took the mortgage, the interest rates have risen to 6 percent. So, instead of getting an entirely new mortgage, which will have payment penalties and probably higher interest rates, it makes more sense to shift your mortgage, which is possible in the case of a portable mortgage. The old mortgage can be moved to the new property but with the terms remaining the same. So your interest rate will still be 4 percent and you do not have to pay any prepayment penalties. Also, there will be only 3 years remaining on your mortgage term. The only additional cost incurred will be a transfer fee that is paid to the bank or the institution that is providing the mortgage.
In case of a private mortgage, some institutions also give portable mortgage insurances. This is necessary when the mortgage is more than 80 percent of the property's value. As long as the terms of the mortgage stay the same, no new premium has to be paid. The loan-to value ratio is either lower or the same as the previous properties.
Advantages of a portable mortgage
€ If the borrower has a low interest rate that is fixed, then no matter what the market rate, the original interest gets transferred to the new property. This can save a lot of money in the long run.
€ Prepayment penalties are often very costly. They are generally equal to about three months of payments or can be the remaining interest of the mortgage. Portable mortgages do away with these additional costs that are very expensive.
€ New mortgages have a lot of costs associated with them. Portable mortgages avoid these. The only fee charged in portable mortgages may be an appraisal fee for the new piece of real estate. This serves mainly as a security measure for the lender.
Portability can get a bit confusing if you are buying a bigger or more expensive property. This usually requires a larger mortgage as well. Then the benefits of a portable mortgage may diminish a little. The additional money, which is the difference between the old and the new homes, will have to be paid by you. But if you plan beforehand and have savings then this issue can be easily dealt with. Also, negotiation with your lender can prove fruitful. They may give you options to blend and extend your mortgage or blend and increase it.
An example of a portable mortgage
Assume you have a house with a mortgage of $250,000, at an interest rate of 4 percent for a 5 year period and an amortization period of 30 years. At the end of the second year you have to relocate to another city for some reason. Since the time you took the mortgage, the interest rates have risen to 6 percent. So, instead of getting an entirely new mortgage, which will have payment penalties and probably higher interest rates, it makes more sense to shift your mortgage, which is possible in the case of a portable mortgage. The old mortgage can be moved to the new property but with the terms remaining the same. So your interest rate will still be 4 percent and you do not have to pay any prepayment penalties. Also, there will be only 3 years remaining on your mortgage term. The only additional cost incurred will be a transfer fee that is paid to the bank or the institution that is providing the mortgage.
In case of a private mortgage, some institutions also give portable mortgage insurances. This is necessary when the mortgage is more than 80 percent of the property's value. As long as the terms of the mortgage stay the same, no new premium has to be paid. The loan-to value ratio is either lower or the same as the previous properties.
Advantages of a portable mortgage
€ If the borrower has a low interest rate that is fixed, then no matter what the market rate, the original interest gets transferred to the new property. This can save a lot of money in the long run.
€ Prepayment penalties are often very costly. They are generally equal to about three months of payments or can be the remaining interest of the mortgage. Portable mortgages do away with these additional costs that are very expensive.
€ New mortgages have a lot of costs associated with them. Portable mortgages avoid these. The only fee charged in portable mortgages may be an appraisal fee for the new piece of real estate. This serves mainly as a security measure for the lender.
Portability can get a bit confusing if you are buying a bigger or more expensive property. This usually requires a larger mortgage as well. Then the benefits of a portable mortgage may diminish a little. The additional money, which is the difference between the old and the new homes, will have to be paid by you. But if you plan beforehand and have savings then this issue can be easily dealt with. Also, negotiation with your lender can prove fruitful. They may give you options to blend and extend your mortgage or blend and increase it.
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