24 Jan

Mortgage Portability Options

General

Posted by: Sarah Alexander

Is Your Mortgage Portable?

Selling your current home and moving into a new one can be stressful enough, let alone worrying about your current mortgage and whether you’re able to carry it over to your new home.

 

Porting enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. And, better yet, the ability to port also saves you money by avoiding early discharge penalties.

 

It’s important to note, however, that not all mortgages are portable. When it comes to fixed-rate mortgage products, you usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate.

 

With variable-rate mortgages, on the other hand, porting is usually not available. As such, upon breaking your existing mortgage, a three-month interest penalty will be charged. This charge – which can be a surprising $1,500-$4,000 penalty at closing – may or may not be reimbursed with your new mortgage.

 

Porting Conditions

While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, some conditions that may apply include:

  • Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day. Other lenders offer a week to do this, some a month, and others up to three months.
  • Some lenders don’t allow a changed term or force you into a longer term as part of agreeing to port you mortgage.
  • Some lenders will, in fact, reimburse your entire penalty whether you are a fixed or variable borrower if you simply get a new mortgage with the same lender – replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand new term of your choice and start fresh.
  • There are instances where it’s better to pay a penalty at the time of selling and get into a new term at a brand new rate that could save back your penalty over the course of the new term.

 

While this may sound like a complicated subject, your mortgage professional will be able to explain all of your options and help you select the right mortgage based on your own specific needs.

 

7 Jan

Further Ahead by Paying off Mortgage Faster?

General

Posted by: Sarah Alexander

Here’s an interesting article that I came across last month in the Globe and Mail – thought I would share it with you all. 

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Many Canadians paying off mortgages faster, but are they further ahead?
Dawn Walton
The Globe and Mail
Published Wednesday, Dec. 19 2012, 6:00 AM EST
Last updated Thursday, Dec. 20 2012, 9:16 AM EST

While I’ve been busy sinking money into mortgage payments, daycare costs, RESPs, RRSPs, utilities, groceries, vehicle maintenance and the occasional vacation, I’ve somehow failed to notice that many Canadians seem to be doing all this – and stepping up their mortgage repayments, too.
According to the Canadian Association of Accredited Mortgage Professionals
[http://www.caamp.org/], over the past 20 years mortgage repayment periods have shrunk to
two-thirds of the actual contracted period. Furthermore, during the past year – a time when
household debt has soared to a record high – 32 per cent of borrowers have managed to dramatically accelerate their mortgage payment schedules. Yes, you read that right. At a time when Canadians have loaded up on consumer, house and car debt, it appears that many people are finding ways to pay off their mortgages faster.

Of the almost 6 million mortgage-holders in Canada, about 1.9 million made additional payment
efforts during the past year. I was not one of them, unless the biweekly payment option counts.
Instead, I am among the 60 per cent of mortgage holders who made only their minimum mortgage
payment. The association’s annual survey, which was released last month, contains some interesting data about those aspiring to be mortgage-free sooner.

$300 – the average monthly increase to regular mortgage payments in the past year
$22,500 – the average lump sum payment among mortgage-holders in the past year
$29,000 – the average lump sum payment among those now mortgage-free during the last year
of their mortgage

Of course, paying off a mortgage faster is a good thing. But is all this bumping up regular payment
amounts, making an annual balloon payment and increasing the frequency of payments, actually
making a serious dent in people’s overall debt load?

Not necessarily, says Rona Birenbaum, a financial planner with Caring for Clients in Toronto. When
she sees clients with very aggressive amortization schedules, a closer look at their cash flow reveals a starkly troubling overall financial picture. “How are you affording this?” she asks them, “You must be creating debt somewhere else, and they are.”

Credit card balances and lines of credit are often rising on the other side of the ledger, she said. Keep in mind that credit card debt comes with higher – often very high – interest rates. All of that means that while people’s mortgage debt is falling, their consumer debt is rising.

“Overall, they are not getting ahead,” Ms. Birenbaum said.  Ultimately, the goal of mortgage freedom makes financial sense for everyone. But Ms. Birenbaum believes that the right approach to repaying mortgage debt depends on the individual or family. It requires discipline with cash flow, and a commitment not to spend a sudden injection of income, such as inheritances or bonuses, on items other than mortgage repayment.

“Interest rates may be low, but any interest is money out of your pocket and into the banks,” she said. And with mortgage rates well below historical averages, borrowers can certainly save money by taking advantage of the low rates to shorten their amortization period. The survey also noted that the average interest rate was 3.55 per cent, and that mortgage rate discounting remains “widespread” in Canada – with the average actual rate for a five-year fixed rate mortgage at 1.85 percentage points lower than the posted rates.

The report, which is based on an online survey of 2,018 Canadians, found that one-third said low
interest rates have helped them beef up repayments, and that the majority planned to pay off their
mortgage in less than 25 years. For Ms. Birenbaum, the report shows that borrowers are getting savvy when it comes to the flexibility offered in their mortgages, but it also reflects some anxiety about what rising interest rates can mean if they don’t have the capacity to pay.

“Canadians are pretty freaked out by what happened in the U.S. and they don’t want to go down that
path,” she said.