But they told me my mortgage was Portable
One of the questions you should be asking when you obtain your mortgage is ” is my mortgage protable”
The answer to this question most often is “yes”
More and more however, this answer that you are getting – especially from your bank, is wrong
The truth is in today’s world, you qualify to move roughly 80% of the balance of your mortgage…..mayyyybeeee……
If there is a chance that you might be
- moving (upsizing or even downsizing)
- locking your variable rate mortgage into a fixed rate product
you need to be paying attention and making note!
The details do matter, and looking at the details, the above question is not complete. And to be fair, you would have no way of knowing this. The person who is answering the question for you should know better than to give you a one word answer…..
The question that you should be asking is
“do i need to re-qualify for my current mortgage to move to a new home?”
the more complete answer is
“yes, your mortgage is portable but only if you re-qualify under today’s new (and more stringent) guidelines”
The person that you should be asking this question to is, and only should be your Mortgage Broker.
Your Mortgage Broker alone can answer the question accurately and only with a complete and updated application, along with all supporting documents to confirm the maximum mortgage amount under current guidelines.
Far 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 a firm and binding purchase agreement, under the assumption that they can just port their mortgage.
Key point– do not ask if your mortgage is portable (99% of mortgages now days are portable)- ask if you currently qualify to move your mortgage to a new property.
Key Point – The federal government has created a dynamic in which there are two different qualifying rates for mortgage approvals. And the one used yesterday to get you into a five-year fixed rate mortgage is not always the same one that is used if you want to move that same mortgage to a new home down the street, even just one day later.
Key Point – One day into your five-year fixed mortgage, you are now subject to the stress test. In a nutshell, the stress test applies the higher qualifying rate and effectively reduces your maximum mortgage approval by ~20%.
Meaning that you may only be able to 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 that original rate when moving their mortgage to a new home.’
Currently this fix does not exist.
The current fix – Well it’s no big deal at all. You simply pay a penalty to break your current five-year fixed mortgage and then apply for a new five-year fixed mortgage. Said penalty amount? Typically, around 4.5% of the mortgage balance – i.e., a $14,000 penalty on a $300,000 mortgage balance.
Seems reasonable, right?
It’s entirely unreasonable. This is a horrible ‘fix’, because 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 an oversight by the federal regulators.
While in Ottawa earlier this year many of our industry professionals met with staff of the Minister of Finance’s office and raised concerns about the impact of this specific negative loophole in the current legislation. This error effectively fattens the coffers of the chartered banks (in particular) at the expense of the Canadian homeowner.
What the staff advised after deliberation was that because just 1% of Canadians port their mortgage, this was seen to be ‘anecdotal’. Lost on said staff was the fact that significantly more than 1% are not able to port at all, rendering the statistic useless.
If you have been personally caught in this ‘portability trap’ it felt more like total devastation than it did ‘anecdotal’. And by all means you should make your voice heard. Either share your story with me directly or better yet via www.tellyourmp.ca