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According to the recent TD Canada Trust 2010 Repeat Home Buyers Report, as well as packing up their worldly goods, one-third of home buyers also take their mortgage with them when they move house.
Before deciding if it is a good idea to port your existing interest rate and terms and conditions to the new place, mortgage advisors say, check rates and penalties and ask yourself how long you plan to stay in your new home.
“If you’re going to live there for the remaining term of your existing mortgage then it makes sense [to port] because you save yourself the penalties,” says Farhaneh Haque, mobile mortgage specialist, TD Canada Trust, Toronto. “You want to consider the cost of the penalty in real dollars versus the savings on the interest rate on the new property if the rate [you would get on a new mortgage] is lower. If you save more than the penalty that you pay today, then financially it makes sense for you to bite the bullet now and move into the new mortgage taking it at the current rate.”
Next question is how much equity do you have, and will you need more than your current mortgage to buy the new residence. Advisors say check the details of your mortgage but that many lenders will do what is known as “blend and extend.”
“Say, today you have a $250,000 mortgage at 3.59% over 35 years, you’re going to be able to maintain that portion of your mortgage,” says Karen Blomquist, mortgage specialist with Mortgage Intelligence in Calgary. “Let’s say rates go up to 7%. Rather than renegotiating a brand new mortgage of say $350,000 at 7% … they’ll take the $250,000 at the 3.59% that you are enjoying today and then they’ll take the additional $100,000 and put it at the new rate and do a combination rate overall.”
The bottom line is that although most prime mortgages are portable nowadays, you must make sure to read the small print to understand the possible restrictions, as well as being aware of any fees attached to the porting of the mortgage.
Please do not hesitate to contact us if you need assistance to evaluate the available options.
Read more:
http://www.nationalpost.com/
Glossary of Mortgage Terms
| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
A
Adjustable Rate Mortgage – Mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices.
Agreement of Purchase and Sale – A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).
Amortization Period – The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 35 years.
Appraisal – The process of determining the value of property, usually for mortgage lending purposes. This value may be less than the purchase price of the property.
Appraisal Value – An estimate of the market value of the property, offered as security for a mortgage loan.
Assessment - The value of a property, set by the local municipality, for the purposes of calculating property tax.
Assumable mortgage - A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the payments.
B
Blended Mortgage Payment – Payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.
Blended Rate Mortgage – A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a “blend” of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.
Buy-down - When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and market rate directly to the lender or to the purchaser, in one lump sum or monthly installments.
C
Canada Mortgage and Housing Corporation (CMHC) – The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to administer the National Housing Act. CMHC’s services include providing housing information and assistance to consumers and providing mortgage default insurance for high ratio mortgages.
Certificate of Location or Survey – A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.
Certificate of Search or Abstract of Title – A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.
Closed Mortgage – A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
Closing Costs – Various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.
Closing Date – The date on which the sale of a property becomes final and the new owner usually takes possession.
CMHC or GEMICO Insurance Premium – Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or GEMICO and the premium is paid by the borrower.
Conditional Offer – An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.
Conventional Mortgage – A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).
Counter-offer - One party’s written response to the other party’s offer during purchase negotiations between buyer and seller
D
Debt-Service Ratio – The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.
Deed (Certificate of Ownership) – The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser’s ownership of the property.
Deposit – A sum of money deposited in trust by the purchaser when making an offer to be held in trust by the vendor’s agent, broker, lawyer or notary until the closing of the transaction.
E
Easement - A legal right to use or cross (right-of-way) another person’s land for limited purposes. A common example is a utility company’s right to run wires or lay pipe across a property.
Encroachment - An intrusion onto an adjoining property — such as a neighbour’s fence, storage shed or overhanging roof line that partially (or even fully) intrudes onto your property
Equity – The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.
F
Fire Insurance – Before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.
Firm Offer – An offer to buy the property as outlined in the offer to purchase with no conditions attached.
First Mortgage – A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.
Fixed-Rate Mortgage – A mortgage for which the rate of interest is fixed for a specific period of time (the term).
Foreclosure – A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.
G
Gross Debt Service (GDS) Ratio – The percentage of gross income required to cover monthly payments associated with housing costs, including the monthly mortgage payment (principal and interest), heating costs, property taxes and condominium fees (if applicable). Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.
Gross Household Income – Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.
H
High Ratio Mortgage – If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.
Holdback – An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
Home Equity – The difference between the price for which a home could be sold (market value) and the total debts registered against it.
I
Inspection – The examination of the house by a building inspector selected by the purchaser.
Interest Rate Differential Amount (IRD) – An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.
Interim Financing – Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.
J
Joint Tenancy – Where two or more persons acquire the same undivided interest in land, at the same time, with the same title and right to possession, through the same conveyance, with the rights of each dependent on surviving the other.
L
Land transfer tax - Payment to the provincial government for transferring property from the seller to the buyer.
Lead Lender – A financial institution which heads up a financial consortium or syndicate to provide funds for a mortgage.
Leasehold Mortgage – A mortgage given by a lessee on the security of his leasehold interests in the land.
Legal Mortgage – The written geographical description of a property as described in the land register.
Liabilities – What is owed, including taxes, mortgage, car loan and credit card balances.
Lien - Any legal claim against a property, filed to ensure payment of a debt.
M
Maturity Date – Last day of the term of the mortgage agreement.
Mortgage Critical Illness Insurance – Mortgage Critical Illness Insurance is available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness Insurance is underwritten by the Canada Life Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your TD Canada Trust mortgage (up to $300,000) if you are diagnosed with life-threatening cancer, heart attack or stroke.
Mortgage Default Insurance – Government backed or privately backed insurance protecting the lender against the borrower’s default on a high-ratio mortgage.
Mortgage Life Insurance – A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
Mortgage Term – The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.
Mortgagee and Mortgagor – The lender is the mortgagee and the borrower is the mortgagor.
Multiple listing service (MLS) - A system for relaying information to realtors about properties for sale.
O
Open Mortgage – A mortgage which can be prepaid at any time, without penalty.
Open Variable Mortgage – A variable rate mortgage in which the interest rate varies with money market conditions and that may be prepaid or renegotiated at anytime without additional interest.
P
Payment Frequency – The choice of making regular mortgage payments every week, every other week, twice a month or monthly.
P.I.T. – Principal, interest and taxes. Together, these make up the regular payment on a mortgage if you elect to include property taxes in your mortgage payments
Porting – This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.
Pre-arranged Mortgage – A mortgage for a set maximum amount and interest rate that is arranged prior to the purchaser finding a house.
Prepayment Charge – A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out in the mortgage agreement.
Prepayment Option – The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.
Principal – The amount of money borrowed for a new mortgage.
R
Refinancing – Renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.
Renewal – At the end of a mortgage term, the mortgage may “roll over” on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.
S
Security – In the case of mortgages, real estate offered as collateral for the loan.
Second Mortgage – A mortgage granted when there is already a mortgage registered against a property. If the borrower defaults and the property is sold, the second mortgage is paid after the first.
Status certificate - A written statement of a condominium unit’s current financial and legal status.
T
Term – The length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 35 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates.
Total Debt Service (TDS) Ratio – The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 37% of gross monthly income.
V
Variable-rate mortgage - A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If market rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor-take-back mortgage - When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
W
Wrap-Around Mortgage – A new mortgage which is registered on title which encompasses a prior existing mortgage for a lower amount and usually for a lesser rate of interest. Payments under the new mortgage include the payments under the original mortgage, and the new mortgagee undertakes to service the prior debt.
Y
Yield to Maturity – A percent returned each year to the lender on actual funds borrowed considering that the loan will be paid in full at the end of maturity.
Z
Zoning – The uses to which property may be put to in specific areas as specified by municipal authorities.