Sunday, January 28, 2007

Taking your mortgage with you to your new home

Most mortgage agreements have a portability option that allows you to apply your current mortgage to a new home if you decide to sell. "Porting" your mortgage may be your best alternative if there's too much still owning on your mortgage for you to consider paying it off immediately, and if your existing mortgage rate is lower than the current rate.

Often, only fixed rate mortgages are portable. If your new home requires extra financing, you can usually borrow additional funds at the current rate - your new mortgage rate will be a blend of your mortgage's existing interest rate and the current interest rate. For example, if you have three years left on a five-year mortgage term, you may be able to borrow the extra money at the current three-year rate. The additional mortgage you just took out to finance your new home has the same expiry date as your original mortgage. When the time comes to renew them, you renew them as one mortgage.

Porting mortgages has become quite common due to the low interest rates of recent years, but choosing what's best for you always depends on your unique financial situation and how much risk you are willing to take. If you've taken to following the rise and fall of mortgage rates religiously in the past few years, you may feel confident in allowing your buyer to assume your current mortgage so that you can take out a new variable-rate or short-term open mortgage on your new home. If you can stand the headache of renegotiating your mortgage every six months, you'll probably end up saving money in the long run.

If you are not a risk-taker and can't be bothered to scour the financial section of the newspaper every morning for the latest trends in mortgage rates, it's worth the bit of extra money you may pay to port your fixed rate mortgage, just for the peace of mind.

If you're wondering about the benefits of porting your existing mortgage to a new home, you can check out the financial consequences online. Surf the Internet - find a online mortgage calculator and pretend you're going to port your existing mortgage and borrow a bit more at the current rate, and tell you what your payments will be. You can simply multiply your monthly payments by the number of months in the mortgage term to get the total amount that you will pay if you port your mortgage.

Use the mortgage calculator a second time to figure out the total amount your would pay on a new mortgage at whatever current interest rate happens to be. If the total amount payable for a new mortgage is less than you would pay by keeping your current mortgage with a new blended interest rate, then you stand to save if you pay off the current mortgage rather than porting it to your new home. Just be sure that the savings you will make with the new mortgage are greater than the penalty fee you'll be charged for paying off your current mortgage early.





http://www.funinusa.com/investing/finance/article_403.shtml