Selling a house with a mortgage
If you are thinking of selling your home and you have a mortgage you have four options to think about. I would recommend checking with your banker and looking at the mortgage documents to find the information you need before planning purchasing your next property.
Option #1. What is the penalty for terminating your mortgage early? Usually this is 3 months interest penalty or the interest rate differential which ever is greater. But the truth is most consumers don’t know what the IRD is and how it is calculated. The IRD is calculated by taking the difference of contracted mortgage rate and the current market mortgage rate multiplied by the amount of years remaining times your mortgage balance.
For example if you owe $300,000 with 3 years remaining, and a IRD of 1.44% that would be a penalty of $12,960 which is far greater than 3 months interest penalty. If the penalty is this big maybe also ask your lender if this penalty can be rolled into your new mortgage.
Option #2. Can this mortgage be moved to another property? If you look at your mortgage contract look for the term portable or portability. If you have this term it indicates that you can move your current mortgage to another property.
Option #3. Can you have a blended rate? In most cases if you are upgrading your current home to another home, you may need to borrow more money. If this is the case ask if you can instead carry on with your current mortgage and have the additional money borrowed at a different rate. Or if you can re-structure to get a brand new mortgage with a blended rate to avoid paying any mortgage penalties.
Option #4. Find out from your lender what your maximum mortgage would be if you sold your property to buy an new one.
So there you have it the 4 options I would look at if I were looking to sell my home which has a mortgage. If you have any questions please reach out to me.
If you are thinking of selling view my playlist of videos here or reach out to my for a free home evaluation.
Question of the day, would you consider breaking your mortgage early to sell your home? Yes or No Please leave it in the comments below. I will try my best to personally answer all comments myself.