The transferability of the loan allows you to renew the conditions of your current loan on a new property! If these initial conditions are excellent, why deprive yourself of them!
The portability of the loan is an element to take into account in your loan contract
Any excess financing necessary to purchase this second property will be borrowed at prevailing market conditions on the day of your new acquisition.
But if the rates increased between the acquisition of your first property and the acquisition of the second, you will benefit from a very nice advantage, provided that you have negotiated the transferability with your bank, which is not a small matter!
The icing on the cake: the portability of the loan allows the borrower to have no prepayment penalty fees. Only the processing costs related to the transfer will be due.
An interesting option if rates go up
The transferability of the loan is a practice that can very quickly be advantageous for the borrower, particularly in the context of a sharp rise in rates.
If the owner wants to sell his property to acquire a new one, it is important to compare the two options available to him, namely: settle his initial loan and take out a new loan or use loan transferability.
Important: the banks do not systematically offer the option of transferability of the loan, and some will never accept the addition of this clause. So remember to ask your banker if adding this option is possible. On the other hand, even if this option is well written on your contract, it is without guarantee of acceptance by the bank.
Concrete example and implementation
To better understand the transferability of the loan, we offer a concrete example below:
A couple buys a property worth $ 300,000 and borrow $ 200,000 for it over a period of 25 years. The borrowing rate is then 2%. 10 years later, they decide to buy a new property for a value of $ 500,000 and therefore need a new loan of $ 400,000 for this.
During this period, interest rates rose to 7%. They then have to repay on the initial loan, $ 100,000 (remember that the interest rate here is always 2%).
Instead of asking the bank for a loan of $ 400,000 at 7% interest rate, this couple has the possibility (under guarantee of acceptance from their bank) of keeping their loan of $ 100,000 at 2% and take out an additional loan of $ 300,000 at 7%.
Instead of borrowing the entire desired loan at 7% (400,000 to 7%), this couple managed to reduce their average borrowing rate thanks to the portability of the loan.
TO REMEMBER !
- Don’t forget to ask your banker for this clause
- This clause can be useful in the event of a rate increase
- Transferability can save you moneyI apply for my loan in 2 minutes