If you're hoping to buy a new home before the new school year starts, then you'll likely need to budget for prepayment penalties unless you're approaching renewal times. And if you're buying in a competitive market like Vancouver, you'll have to move quickly and close on the seller's timeline.
Mortgage portability allows you to move an existing mortgage to a new home and keep the same interest rate without incurring prepayment penalties on the sale of your previous home. Not all mortgages allow for porting, but if yours does, this sounds like a great way to right avoid penalties, right?
A lot of homeowners think a port will work, but in reality the restrictions on most ports make it challenging. Here's why:
Lenders require borrowers to complete a port within a tight timeframe, typically 90 days from the closing of their existing home. Relying on a three-month window to find the right home is a deal-breaker for many buyers, especially in a competitive seller's market where you might be bidding against multiple buyers or have to close on the seller's time frame, not your own.
Once you have a home you want to buy, your lender will need to approve the transaction by reviewing information about the home, your credit history and income at the time of application which essentially means you would need to requalify.
The appraisal has to come in at or a higher value and the property type has to one that the lender feels comfortable lending on. If the lender has a no-lending policy on restricted properties such as self-managed buildings, former grow-ops, remediated buildings and leaseholds, they will not accept the port if the new home is not an acceptable property.
If your financial situation has changed (perhaps your credit score dropped due to late payments or you took out a new car loan), then you may not qualify as your ratios would no longer be lined. Changing jobs would be another issue all together which we'll explore below.
Moving to a new city often means taking a new job. With any new employment, there is usually a trial, or a probation period to see if it is a good fit for both you and the employer. Mortgage lenders like to see stable source of income and employment, and being on probation may mean that your income can not be used.
Unless your partner's income alone is sufficient, this can be a hurdle in the lending process and the port may not be doable. If your income is reliant on bonus or commissioned income, you would need two years history for the lender to use your total income.
However, there are a few situations where this issue wouldn't apply. For instance, if you're simply upgrading to a larger home or one in a different neighbourhood, you're relocating to another city with the same employer or you've already qualified for the mortgage as self-employed and you're continuing that line of work, you wouldn't be subject to a probationary period but you'd still need to requalify in other areas and complete the port within the lenders' timeline.
It's important to look at porting, but know that a port may not always be an option for the reasons above. When you're looking at mortgage options, don't ignore the prepayment penalty just because you plan to port the mortgage if needed.
Speak to your broker about your short and long term goals to make sure you are in a mortgage that will work for you and you can adapt as your needs evolve.
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