Penalties to be Aware of

Before you sell your home, you will have to decide what to do with your current mortgage: port it, assume it, or break it.

Porting a mortgage

Porting a mortgage means you would be taking your current mortgage, with its rates and terms, and moving it to another property; this is obviously only an option if you are buying another home, at the same time you are selling your current one. Because not all mortgages are portable (variable rate mortgages, for example, are generally not portable), it’s a good idea to sit down with a mortgage broker and discuss your current mortgage, before you even start house hunting.

Assuming a mortgage

Assuming a mortgage is a financial arrangement made between the seller, the seller’s lender and the buyer, and involves transferring the current mortgage from the seller to the buyer. If you are the seller, your mortgage rate is low, and regular mortgage rates are rising, giving buyers the option to assume your mortgage might make your property that much more attractive. If you are the buyer, you have to be prepared to pay the difference between the purchase price and what is outstanding on the mortgage; you would then assume the regular mortgage payments on the seller’s original terms.

Breaking a mortgage

Breaking a mortgage is one of the most common actions homeowners take when selling their homes, especially in a time where interest rates are low. To break a mortgage simply means you are cancelling your original mortgage agreement; to do this, you have to pay your lender a mortgage penalty fee. A mortgage penalty fee is the greater of two options: three months of interest or an interest rate differential.