Can I Keep My Mortgage Rate If I Move?

Moving to a new home often brings financial considerations, and a common question for homeowners involves their existing mortgage. Many homeowners wonder if they can retain their current mortgage interest rate when relocating to a different property. While a mortgage is inherently tied to a specific property and its borrower, the direct transfer of an existing mortgage to a new home is generally not straightforward. Homeowners should understand the various mechanisms and options available when contemplating a move, especially when current interest rates are favorable.

Mortgage Portability Explained

Mortgage portability offers a mechanism for homeowners to transfer their existing mortgage, along with its interest rate and terms, from their current residence to a new one. This option typically involves keeping the same lender and is designed to allow borrowers to maintain their existing mortgage conditions without needing to apply for an entirely new loan. The primary benefit of portability lies in preserving a favorable interest rate, particularly when market rates have increased since the original mortgage was secured.

To qualify for mortgage portability, borrowers usually need to meet specific criteria set by their current lender. This often includes a new credit check, an updated income verification, and a review of the borrower’s debt-to-income ratio to ensure they still meet the lender’s current underwriting standards. The new property also undergoes an eligibility assessment, which may include an appraisal to confirm its value and suitability for the loan.

Various fees and costs can be associated with porting a mortgage. These may include an application fee, appraisal fees, legal costs, and potentially a re-registration fee. Some lenders might also charge an administrative fee. Costs typically range from a few hundred to a few thousand dollars, varying by lender and transaction specifics.

When the purchase price of the new home differs from the outstanding balance of the original mortgage, adjustments are necessary. If the new home is more expensive, borrowers may need a “top-up” loan to cover the difference, which could be at the lender’s current interest rate, creating a blended rate or a second mortgage. If the new home is less expensive, the borrower typically pays down the principal balance, reducing the mortgage amount. Some fixed-rate mortgages and certain adjustable-rate mortgages may be eligible for portability, but eligibility depends on the original loan terms and lender policies.

Applying for mortgage portability begins by contacting the current mortgage lender. Borrowers should inform their lender of their intention to move and inquire about portability options and requirements. The lender will then guide them through the necessary documentation, such as proof of income, asset statements, and new property details. After submitting the application, the lender will conduct their assessments, including the credit review and property appraisal, before making a decision.

Assumable Mortgages

An assumable mortgage allows a new buyer to take over the seller’s existing mortgage, including its balance, interest rate, and terms. The loan stays with the property, and the new homeowner assumes the original borrower’s responsibilities. While this mechanism can be attractive to buyers in a rising interest rate environment, it primarily benefits the buyer of the original home, not allowing the seller to transfer their rate to a new property.

Certain types of mortgages are typically assumable, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and some United States Department of Agriculture (USDA) loans. These loans often permit assumption if certain conditions are met. Conversely, conventional mortgages are rarely assumable due to the widespread inclusion of “due-on-sale” clauses. A due-on-sale clause stipulates that the entire loan balance becomes immediately due upon the sale, preventing assumption without the lender’s consent, which is seldom granted.

Assuming a mortgage requires the new buyer to qualify with the original lender. The lender must approve the new buyer, assessing their creditworthiness, income, and debt-to-income ratio. This approval process is similar to applying for a new mortgage. If approved, the buyer assumes responsibility for the existing loan.

For the seller, it is important to obtain a release of liability from the original loan. Without a formal release, the original borrower remains financially responsible for the mortgage if the new buyer defaults. Lenders require documentation and procedures for this release, protecting the seller from future obligations. While an assumable mortgage allows the interest rate to be “kept” with the property for the new buyer, it does not enable the original homeowner to transfer their current favorable rate to a new property.

Obtaining a New Mortgage

Acquiring a new mortgage for a new property is the most common option when relocating. This approach is essential when mortgage portability or an assumable mortgage is not a viable solution. It involves securing a separate loan for the new home, independent of previous mortgage arrangements.

Several factors significantly influence the interest rate and terms of a new mortgage, with current market interest rates playing a primary role as they fluctuate based on economic conditions and central bank policies. A borrower’s credit score and credit history are also paramount, with higher scores generally leading to more favorable rates. The debt-to-income ratio, which compares monthly debt payments to gross monthly income, is another critical factor lenders consider to assess repayment capacity. Furthermore, the loan-to-value ratio, determined by the amount of the down payment relative to the home’s value, impacts both the interest rate and whether private mortgage insurance (PMI) is required. The specific loan type chosen, such as a fixed-rate, adjustable-rate, FHA, VA, or conventional loan, also carries different rate structures and terms.

Applying for a new mortgage begins with getting pre-approved by a lender. Pre-approval provides an estimate of how much a borrower can afford, signaling to sellers that the buyer is serious and qualified. Following pre-approval, borrowers gather required documentation, which typically includes recent pay stubs, W-2 forms, tax returns, bank statements, and investment account statements to verify income, assets, and employment. This documentation supports the underwriting process, where the lender thoroughly reviews the borrower’s financial information and the property details to assess risk and make a final lending decision.

An appraisal of the new property determines its fair market value, ensuring it supports the loan amount. Title work is also performed to verify clear ownership and identify any liens or encumbrances. The final stage involves closing, where all parties sign the necessary legal documents, funds are disbursed, and ownership is transferred. When evaluating new mortgage offers, homeowners should compare interest rates, annual percentage rates (APRs), closing costs, and the overall loan terms to ensure the chosen mortgage aligns with their financial goals.