Whether you’re the kind of person who wants to pay off their mortgage by the time they’re 50, or the kind of person who likes to move every few years, it’s important to understand the realities of what a potential move might mean for you financially.
Below we explore what happens to your mortgage when you decide it’s time to move:
If Your Mortgage Is Paid Off
If your mortgage is paid off and the term has ended, moving homes is a much easier process. You’ll also hopefully receive a large sum of money when you decide to sell – because you won’t be breaking any term contracts and won’t have to cover any remaining balances or fees.
However, when buying a new home, you’ll need to take out a new mortgage, with new terms. You can either use the money you received from the sale of your old house to make a dent (or to cover) the cost of your new home, or you can use that money differently – travel, investments, etc.
If Your Mortgage Is Not Paid Off
If you would like to move to a new home before your current mortgage is paid off, you will still need to pay back the remaining money you have borrowed.
If the price you are selling your home for is less than the mortgage on your home, you will need to pay the difference. If the price you are selling your home for is more than the mortgage, you will likely make a profit on the sale of your home and the mortgage will be covered.
However, don’t forget that you are likely to incur fees for exiting your mortgage before your term is up.
Porting Your Mortgage
In some cases, borrowers can port their mortgage to their new home. This allows borrowers to keep the same mortgage (rate, terms, etc.) while simply borrowing a different amount of money (increase or decrease) – relative to the price of the new home. For example, if you are moving to a less expensive home, you may need to reduce your mortgage.
This agreement means that both parties agree to sign the mortgage over to a new property but to maintain their relationship. Take note that you will still need to qualify, and the property must be approved and appraised.
Homeowners typically decide to port their mortgage when they currently have a great interest rate with their current lender. Borrowers also choose to port to avoid penalties.
Deciding Not to Port
If you decide not to port your mortgage, and your mortgage term hasn’t been paid off, you will need to break your contract with your current lender and pay the penalty.
People tend to choose this option if they are not happy with their current mortgage lender, their services, or their rates.
Who Can’t Port a Mortgage?
Porting a mortgage is most often not an option for those with a variable rate mortgage. (Refer to your original mortgage agreement to see if your current mortgage allows a porting option.) Porting is also unavailable to those who do not meet the requirements for approval on a new mortgage.
Qualifying for Porting or a New Mortgage
Under Canada’s Stress Test Guidelines, if you would like to transfer your mortgage or take out a new mortgage, you will need to re-apply to meet current lending criteria.
The mortgage stress test consists of a process to identify if a borrower could afford to pay back their loan should the interest rates rise. To measure this, a borrower is judged against the five-year standard rate.
If it appears that the borrower can handle the financial stress of the rate increase, they will be approved. If it appears that they cannot handle the stress of a rate increase, they will not be approved.
Please visit our article, ‘What You Need To Know About The Canadian Mortgage Stress Test’ for more information.
Tips for Moving Mortgages
1. Talk to a Trusted Broker
Always ask your trusted mortgage broker about what a move for you might look like financially. They’ll be able to advise you if it’s a good time for you to move or if it’s not.
2. Save for Fees & Penalties
Fees and penalties can come up if you are breaking your current mortgage term or if the sale of your house does not cover both the mortgage and your costs to move. Be sure that you are in a secure financial position to move before you decide to get started. Note that these costs may be able to be included in your new financing.
3. Research Better Rates
In other words; don’t put yourself in a tight situation by purchasing a more expensive property with a more expensive rate if you can’t afford it long-term (the new stress test will help to prevent this).
When it comes to competitive rates, do your homework by asking a broker to help!
Contact The Mortgage Station
If you’re ready to start looking for a new home, give us a call! We’ll be sure to review your case and to help you identify a financial plan that suits your needs and specific situation.
When you’re ready, we can help to set you up with a new mortgage or help port your mortgage to a new property. We’ll also work hard to find you the best rates and to deliver high-quality, family-friendly customer service.
To learn more about Canadian mortgage trends, please visit our blog article, ‘9 Things Canadians Should Know About Mortgages In Canada’ or call us today at 1.877.512.0007.