Mortgagenomics Canada

One of the consequences of selling a home is the unexpected penalty that arises as a result of breaking your mortgage contract ahead of its maturity date. The penalty is determined by the greater of 3 months interest, or the dreaded interest rate differential (IRD). And the scary part is the your penalty can radically change from the day you list your property for sale to the day you sell it, especially in a whacky environment like we are currently in with the recent free fall in interest rates.  

One way to avoid a break penalty is by porting your mortgage to your new home purchase.

HERE's HOW A MORTGAGE PORT/TRANSFER WORKS:

There are three (3) Porting options:

• Straight Port (when you transfer precisely the same mortgage balance to the new property)
• Port and Increase (when you transfer the mortgage and increase the principle balance) 
• Port and Decrease (when you transfer the mortgage and reduce the principle balance)
• **depending on the lender, applicants have 30 to 180 days from the sale of their current home to close on their new home

Porting a mortgage is subject to the following:

• porting fees: $75 to $400 depending on the lender
• a break penalty is actually charged as the initial mortgage needs to (technically) discharge itself off the current land title
• the break penalty (or part of it) is then reimbursed upon advance of the newly ported mortgage
• some lenders will waive break penalties (fully or partially) if the closing dates of both properties are the same day

Penalty Reimbursements are as follows:

• Straight Port - reimbursed in full
• Port & Increase - reimbursed in full
• Port & Decrease - partial reimbursement [(New Money/Old Money) * Penalty]

Impact On Rates:

• Straight Port - interest rate remains the same
• Port & Increase
• Fixed - weighted average blend 
• Variable - greater of prevailing market rates or your current rate
• Port & Decrease - interest rate remains the same

Impact to Amortization & Term:

• in all cases the remaining amortization on the new ported mortgage will remain the same as the remaining amortization on the existing mortgage
• in all cases the term of the new ported mortgage must be equal to or longer than the remaining term on the existing mortgage

That’s all I got. Check in next week for more.

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