Moving With Your Mortgage
“More And More Canadians Are Moving Their Mortgage With Them When They Buy A New Home, But Does This Make Sense?”
According to a report from TD Canada Trust, about a third of buyers are transferring their old mortgage to their new home.
See details of report here http://www.montrealgazette.com/life/Pack+mortgage+when+move/3621053/story.html
I was surprised that the number of people doing this was this high, but not that transferring the mortgage wasn’t a fairly common practice.
I think this speak more to people paying more attention to the terms and conditions of their mortgage as well as where interest rates are likely headed.
The reason to transfer your mortgage is strictly economical. That is, are you going to be better off financially by doing this that it you don’t.
This type of strategy is going to be most effective and advantageous in a market where interest rates are rising or have risen since the time you entered into your mortgage.
Under these conditions, you would likely have a lower interest rate penalty compared to a time period when interest rates were falling, and you would be able to retain the interest rate remaining on your existing term which could be lower than what’s available to you in a rising rate market.
And depending on the terms and condition of your mortgage and the flexibility provided by the lender to keep your business, there can be other options as well.
For instance, say you are buying a more expensive house for $500,000, your old mortgage is $300,000, and you require a further $50,000 in financing to complete the transaction.
Some programs will allow you to increase the mortgage amount, but have the incremental borrowing amount based on the current rates, which are likely going to be higher if it’s making economic sense to transfer your mortgage. So say your old mortgage is at 4% and the new rates are 5%, some programs will blend the interest rates together and come up with a new payment.
Under this example, there is no prepayment penalty and you’re only paying a higher interest rate on the additional funds being borrowed.
In the end, this whole exercise comes down to what you plan to do in the future (for example, will you see the term on your old mortgage through to its completion?) and how the math works out. If there is a real financial benefit to transferring the old mortgage, then its something that should be considered. If it doesn’t make financial sense, pay off the old mortgage and get a new mortgage for the new property you are acquiring.
The best way to approach this decision making process is to work with an experienced mortgage broker who can work through all the relevant terms and conditions of your old mortgage with you and then help you do the math properly so you have the basis for making an informed decision.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel