Variable mortgages up to late summer of 2011 were very attractive due to the large discount off prime at that time (prime less 0.75%). Many homeowners and real estate investors took advantage of getting a variable mortgage on their home or real estate investment properties. The mortgage product is portable and assumable which means the homeowner or real estate investor can port (transfer) the mortgage to a new home as long they qualify and it's done within a certain period of time between selling one property and buying another (typically 90 to 120 days). As for being assumable, the mortgage can be taken over by the buyer should they qualify. There is a catch however when porting a variable mortgage. Unless the exact mortgage amount is transferred over to the new property, lenders will reset the rate to whatever the market rate is at that time. Here is an example, let's say the borrower got a variable mortgage at prime-0.75% and the balance at the time of moving is $250,000. They are buying a home which will require the mortgage amount to increase to $300,000. The borrower can consider 2 options:
- Port the mortgage of $250,000 and obtain a line of credit for the difference, in this case $50,000 in order to maintain the prime-0.75% on the variable mortgage
- Obtain a new $300,000 variable mortgage at today's rates (prime-0.1% to prime+0.1%) with the same lender without incurring a penalty
In the above case, it's clear that keeping the mortgage at prime-0.75% is a wise option. It's important to understand the fine print of the mortgage and and discuss the available options with your mortgage professional.
As for the blog post title, yes variable mortgages are portable, but with a catch!
To discuss your personal mortgage financing situation, please contact me.