Moving up to a New Home 

Some Of The Lenders Our Mortgage Brokers Work With and banks we have relationships with.

Here are some specific highlights of the process for each of the 3 options available. 

• Sell your home and take your mortgage with you

99% of (good) mortgage offer homeowners the flexibility to keep their mortgage when they move from one home to the next. This is called “porting” your mortgage.  This works if you are selling and buying your home right around the same time.  If there is a large gap of time between your purchase and your sale, this may not work for you. 

In very rare cases, your mortgage needs would remain the same with your new home, but in most cases you will either be upsizing or downsizing so your mortgage amount will change.  In these cases you’d be dealing with a “port-increase” or a “port-decrease.” 

Port-Increase

This means that you are increasing your mortgage amount.  You will receive a blended rate between your current rate and the new rate.  

Port-Decrease

This means that you are decreasing your mortgage amount.  Your normal pre-payment penalties will apply on the piece of the mortgage that as decreased.  For example, if your original mortgage was for $300,000 and your new mortgage will only total $200,000 you would be charged pre-payment penalties on $100,000.  

Porting a mortgage can help save money when your existing mortgage rate is lower than the current rates available to you.  Even if you need to increase your mortgage for your new home, you may want to keep your lower rate and blend that with new funds at current rates to get a better overall rate.  In addition, porting your mortgage may avoid prepayment charges that are applied when breaking a closed mortgage early. These savings can be significant, depending on how much time is left on the term of your mortgage or if your mortgage is with one of the 5 big banks.  (They have the highest pay out penalties for fixed rate mortgages in Canada).  

It is important to remember that both you and the property have to qualify to port your mortgage to a new property.  Sometimes clients understand that porting the mortgage is as easy as sending in a new address.  This is not the case.  Porting your mortgage is the same process as obtaining a mortgage for your new home.  It involves employment and down payment verification and potentially an appraisal on your new property.  Make sure to speak to a mortgage professional and confirm that this is the right process for your current mortgage.   

• Sell your home and obtain a new mortgage.  

The main reason for breaking your current mortgage and obtaining a new mortgage is typically because it is saving you money or providing you great flexibility going forward.  There are three main reasons you would want to pay out your current mortgage and obtain a mortgage for your new property purchase.

1. You can obtain a lower rate
2. You can take equity out of the home to pay out high interest debt
3. You can obtain a new mortgage product with greater flexibility 

Obtaining a lower rate

In the last 18 months, the Canadian mortgage Market has seen rates between 1.99% and 3.69%.  This is a massive difference, so if you are on one end of the spectrum, it will definitely make sense to port, but if you’re on the other end, it will definitely make sense to originate a new mortgage.  Here is an example:

Mortgage amount: $400,000

The difference in interest paid over a 5-year fixed term between a rate of 2.89% and 2.19% is $15,032.  If the payout penalty on your mortgage is less than $15,000 then it makes sense to originate a new mortgage.  Your broker can run all of these numbers for you.  Or, you can use an application like THIS ONE (live link to app if you want) to run the numbers on your own. 

The rule of thumb is that if you can obtain a mortgage about 0.30% less than the original mortgage rate, then you should consider a new mortgage.  

Eliminating high interest debt

Over the years, it is not uncommon to accumulate some debt on credit cards, lines of credit or potentially car loans.  If you’ve got a home with equity, (meaning the mortgage amount is less than the value of the home), then it might make sense as your moving to the new home to extract some of that equity to pay off higher interest debts.  Examples would be credit cards at 18% or lines of credit at 9% or even a car loan if that loan is at an interest rate higher than what you can achieve with your mortgage.  

Sometimes, it’s not even about eliminating the debt, but about creating a monthly payment that works better for you and your family.  Your mortgage professional can help you navigate a budget that works for your family. 

Obtaining a new mortgage product with greater flexibility 

Maybe a new mortgage is in order because you want the flexibility for your mortgage to include a Home Equity Line of Credit.  Maybe you’re interested in purchasing a property that needs some renovations and a purchase plus improvements (this should be a link to a PPP page) mortgage is the right answer for you.  

It is just reasonable to think that as your life evolves your needs change.  A mortgage professional will be able to provide all of the options available to you at this time in your life to help meet your goals.  

• Keeping your home, renting it out and obtaining a new mortgage for your new property

In many cases as clients move towards purchasing a new, they decide that they want to keep their current home as a rental.  Owning investment property is a great way to diversity your retirement portfolio and generate additional monthly income, but keeping a property that may not be a great investment property might not make sense.  Your mortgage professional should be able to help you navigate the best way forward with your current home.  Here are the key things to take under consideration if you’re going to rent your home:

1. What monthly income can you generate from the rental payments from tenants? 
2. What is your current mortgage payment – could this be adjusted to lower your monthly obligations? 
3. What are the monthly condo fees (if applicable) and insurance fees?  
4. What is the payout penalty on the mortgage that currently exists on that property?  
5. What is the time remaining on that mortgage – would a 1-2 year lease agreement help you avoid a payout penalty of $10,000?

The key takeaway is that whether you sell your home and port your mortgage, sell your home and obtain a new mortgage or keep your home and rent it out – there are many options available.  Make sure to connect with an experienced mortgage professional so that you can evaluate all of the specific scenarios for your personal financial situation.