Portable Mortgages

Portable Mortgages

It’s a fact – 70% of first-time homebuyers will not complete their five-year mortgage term. Typically the average break will come around three and a half years. How prepared are you to make adjustments to your mortgage in the eventuality of a change-of-life situation?

The book Mortgage Smartsdescribes the portable mortgage as follows:

“This is a mortgage that you can transfer (port) from one property to another when you move. The lender will usually require an appraisal of the property you wish to buy to ensure that the value of the new property as security is no less than that of your current home. If the balance on the mortgage you want to port does not meet the standard loan to value ration, you will have to come with more cash as a down payment or borrow the amount, perhaps as a second mortgage on the new property.  You must qualify for the mortgage that you are porting at the time you are moving it. That means that if, since you took out your current mortgage you have added too much debt and so wouldn’t qualify for the mortgage you have, you will have to put up more equity in the form of cash before you can finish the transaction.

Richard is moving from a large house to a condominium. The outstanding balance owing on his mortgage is $430,000. And the value of the condominium he is purchasing is $480,000. This means that he will have more than an 80% loan to value ratio, so the lender will require Richard to obtain mortgage default insurance. Or, Richard could take money from his savings as a down payment. Or Richard could look for a mortgage from a private lender.

Peggy and Dan divorced last year. Because they have young children, they decided that Peggy would become the sole owner of the matrimonial home. Even though the mortgage on their house is portable, Peggy does not qualify for the amount of money on her own, so she will not likely be able to port it to another property even though she has been making the mortgage payments on her own for the last six months. (Part of the divorce settlement might have been that Dan would act as a guarantor on the mortgage if Peggy decided to move.)”

The portability of your mortgage depends on your lender -some lenders allow this and some do not. Portable mortgage default insurance is available to homeowners; a feature where you can transfer your original mortgage to a new property while maintaining that low-interest rate and saving on the cost of setting up a new mortgage.  Your mortgage default insurance can also be ported.

CMHC lays out their eligible products regarding your portability options – whether you have a “straight portability” or “portability with increase” mortgage – terms and conditions they explain on their website:

https://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC_Portabilty.pdf

When we make large and important decisions like purchasing a house for example, it is wise and pragmatic to plan for any unforeseen circumstances or a life-changing event. With the excitement of the purchase refer back to a list of priorities you can draw up to ask all the right questions. Make sure you understand the terms and conditions and options; that you have mortgage protection when you enter in to and before you sign your mortgage. Also remember to ask your Mortgage Broker the question: Can you port your mortgage if you have to or decide to move before term?

Excerpt was written with permission from the authors of “Mortgage Smarts” published by and available from Friesen Press

Real Home Advice

Real Home Advice

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