The question: ‘Is my mortgage portable?’
The answer most often given: ‘Yes.’
This answer is increasingly wrong.
In reality, you may qualify to move 80% or less of the current balance.
The proper question: ‘Do I need to re-qualify for my current mortgage to move to a new home?’
The proper answer: ‘Yes, your mortgage is portable, but only if you re-qualify under today’s new and more stringent guidelines.’
Who is the very best person to answer the portability question? Your mortgage broker.
They will answer this question accurately. And it can only be answered accurately with a complete and updated application, along with all supporting documents to confirm the maximum mortgage amount under current guidelines.
Calling the 1-800 number on your mortgage statement, or asking the teller while depositing cheques is far less likely to get you an accurate answer. Instead that tends to be the origin of the one word answer.
Call your mortgage broker as soon as you start thinking about moving.
Too many clients learn this lesson the hard way. They sell their existing property before speaking with their Mortgage Broker, and in some cases they also enter binding purchase agreements under the mistaken assumption they can just ‘port their mortgage.’
What is the problem?
Key Point – The Federal Government has created a dynamic in which there are two different qualifying rates
used for approvals. One is for the initial purchase or refinance, and the other is for when it comes time to move to a new home.
So the qualifying rate used yesterday to get you into a five-year fixed rate mortgage on your current home is not the one being used to qualify you to move that same mortgage to a new home down the street, even just one day later.
Key Point – One day into your new five-year fixed mortgage you are now subject to a ‘stress test’. In a nutshell, the stress test effectively reduces your maximum mortgage amount by 20%. Meaning that you can only port 80% of the current balance to another property… just one day later.
So, what’s the fix?
The best fix – The government could add a simple sentence to their lending guidelines along the lines of ‘If a borrower qualified for their mortgage at the five-year contract rate at inception, then the borrower shall be allowed to re-qualify at the original contract rate when moving their mortgage to a new home.’
Currently this fix does not exist.
The current fix – You pay a penalty to break the current five-year fixed mortgage you have and then apply for a new five-year fixed mortgage. Which is as ridiculous as it sounds.
The penalty amount? Approximately 4.5% of balance, i.e., $14,000 on a $300,000 mortgage balance. Yes, you read that correctly.
This is entirely unreasonable. It is not a fix at all. If you bought with 5% down, and then a few months later were transferred to another province and had no choice but to move, this represents your entire down payment vanishing due to a simple oversight by the federal regulators.
This article was originally published in the Dominion Lending Centres August 2017 newsletter.