Home Exit Strategies
Are you considering exiting the real estate market? There are several ways to do it. You could sell your home and rent, port your mortgage to a new property or let someone assume your mortgage. In this article, we’ll look at the pros and cons of each of these strategies to help you make an informed decision.
Selling Your Home and Renting
The most basic exit strategy from the real estate market is selling your home and renting. There are several reasons you might do this. Maybe you’re tired of the responsibilities that come with being a homeowner. Maybe you’re relocating to another city for a new job opportunity. If you’re unsure if you’ll like it there, it’s probably a good idea to rent first until you decide to buy a home. It’s a lot easier to stop renting than to buy a home, pay the closing costs, sell the home and pay the closing costs again.
Just be aware that if you’re selling your home, you’ll more than likely have to pay a mortgage penalty. If you have a variable rate mortgage, the penalty is usually only three months’ interest. If you have a fixed-rate mortgage, it’s usually a lot more.
Make sure you know the penalty ahead of time so that you can make an informed decision.
Porting Your Mortgage to a New Property
If you want to sell your existing home and buy another home, an option worth looking into is porting your existing mortgage. When you port your mortgage, you bring it with you to the new property. The advantage of this is that you avoid paying costly mortgage penalties. If your mortgage has favourable terms (i.e. a competitive interest rate), you get to keep it.
When signing up for a mortgage, be sure to read the fine print. Some lenders only give you 30 days to port your mortgage, while others give you 90 days. The more time, the better, as it can be challenging to buy and sell a property and have them close within a 30 day time period.
You’ll also want a mortgage that allows you to port and increase it. This comes in handy if you’re buying a property that’s worth more than your existing property and you don’t have the additional funds to put down.
Letting Someone Assume Your Mortgage
A third option is to let someone assume your mortgage. When you let someone assume your mortgage, your mortgage is transferred to the new homeowner upon your home’s sale. Your home’s title and mortgage are transferred to the new homeowner.
Having an assumable mortgage can be a great selling feature if mortgage rates are a lot higher right now, as the new homebuyers can take advantage of the lower rates. However, there are some downsides to be aware of.
The new homebuyer will have to make up the difference if the mortgage being assumed isn’t sufficient with the homebuyer’s down payment to cover the purchase price. As the home seller, you could also be held responsible if the new homebuyers are delinquent on the mortgage. That’s why assumable mortgages aren’t that common in Canada.
The Bottom Line
Still not sure which option is right for you? Please speak with one of our mortgage experts and let us help you.