Amidst the excitement of buying your first home, you may not realize the repercussions the mortgage choices you make today will have on your future relocation flexibility.
Many banks and lenders charge some hefty fees for mortgage agreements that are broken before the allotted term is up. If you’d like to get into the housing market today, but aren’t sure whether you’re going to stay in one residence for the next five years, pay close attention to the following mortgage options:
A five-year term isn’t the only available option out there. In fact, there are plenty of one, two, three and four-year terms that offer even lower rates. If you know for a fact that you’re going to need to move within a specific time frame, it might make sense to take the lower term – and the lower rate.
Open vs. Closed
While closed mortgages often offer better rates, they offer little flexibility. An open mortgage allows you to pay down a mortgage at any time, while a completely closed mortgage does not. In many cases, lenders offer a sort of hybrid of the two – where you can prepay a certain percentage of the loan per year, but if you want to pay off the whole thing, you’ll have to pay a fee.
In this case, if you choose to move before the mortgage term is up, make sure your mortgage has a good portability option so that you can transfer it from your existing home to your new home. If there’s a chance you may sell your home and not purchase a new one, you should be going for an open mortgage.
This feature is an absolute must if you might be moving within the term of your mortgage. It allows you to ‘port’ your mortgage – or move it – to your new home without any fees. If your new home is of a greater value than your previous home, the difference in the cost will be offered at the current rate, and the two rates will be proportionally blended into one rate. This saves the complications of acquiring a second mortgage for the remaining portion.
Many lenders do, however, have certain requirements on how a mortgage can be ported. To avoid any hidden fees, make sure you understand the guidelines before signing on the dotted line.