Is your mortgage portable?

Are you thinking about moving up or perhaps downsizing?

If so, there are several things that you should consider regarding your financing for planning the move.

You may believe that your mortgage is portable (you can take it with you) should you decide to move to a new property but did you know that both you and the new property must requalify for the mortgage.

You should speak to your mortgage broker to find out if you ‘qualify’ to port your mortgage before you start shopping for a new property or list your current property.

Definition of porting

  • This option allows you to transfer the interest rate and all the existing terms and conditions of your current mortgage over to your new property. The advantage of porting your mortgage is that you automatically avoid any prepayment fees for breaking your existing mortgage.

But not all mortgages are portable and every lender has different policies regarding the porting of their mortgages.

As an example, most variable rate mortgages and home equity lines of credit are not portable, which means you may not be able to take your current great rate with you to a new property and will be required to qualify for new mortgage financing.

If you stay with your current lender they may waive penalties.

Here are a few other points that you should consider to prevent any surprises.

Mortgage penalties

  • Most mortgages are portable but some lenders may not be willing to approve the moving of your current mortgage to a new property. You may have to seek new mortgage financing with another lender as your current lender may have issues with the property – self-managed strata properties, former grow-ops, age restricted properties, etc. Or you may no longer qualify for financing with this lender due to all of the changes to mortgage qualifications in recent months or changes in your own circumstances.
  • There can be a limited window of time for you to complete the porting of your mortgage. Some lenders only allow 15 days to complete while others will go up to 120 days. It’s important to know this information in advance as you plan your move.
  • If the sale of your current home completes before the purchase of your new home, a lender is going to collect any penalties that are owing and will not reimburse you until the purchase of your new home is complete. This needs to be included in your financial budget for the purchase of your new home.
  • Many lenders will not allow you to port and increase your mortgage so you may be actually looking at today’s rates on a new mortgage financing rather than porting the rate on your current mortgage.
  • If you currently have your mortgage with a credit union and you move out of their trade area or out of province, you most likely cannot take your current mortgage with you to a new property.
  • Whether you are moving up or moving down, with a little bit of planning and budgeting all can go smoothly. You may not be planning for a move when you initially secure your mortgage but a little planning for the future may save you thousands of dollars should you want or need to make a move to a new property.

Every lender has different policies regarding the porting of their mortgages and it’s important to secure your mortgage with a lender that not only has great rates but also the most flexible terms and conditions.

Your first call should be a chat with your mortgage broker to ensure you qualify for your financing before listing your current home and then you can move forward with confidence to your new home.

Self-employed, owe taxes?

When you are self-employed and don’t have tax deductions coming off your paycheques and haven’t made other provisions to cover your tax debt at the end of the year, you could have a problem.

Tax debt is serious and should be dealt with immediately.

The Canada Revenue Agency has far reaching powers when you owe money to them. They will find a way to collect.

They charge penalties and interest on your overdue taxes.

They can withhold payment of your Child Tax Credit and GST rebate.

They can take money from your bank account or garnishee your wages.

If you own real estate, the CRA can register a lien against your property if what you owe to them has been outstanding for an extended period of time.

This is done to guarantee that you pay your outstanding debt. When a lien is registered against your property, it can prohibit you from refinancing or selling it until the outstanding debt is paid in full.

An important issue to consider is that if you are self-employed and your income tax is not current, you will not be able to secure mortgage financing to purchase a home, buy a vacation property, transfer your mortgage or access equity in your property.

Even our alternative and private lenders will not advance a mortgage unless any CRA tax arrears are paid in full.

Canadian banks and credit unions will not provide an unsecured loan for the payment of income tax debt and they generally cannot refinance an existing mortgage to cover the debt either. 

The CRA will generally not accept any arrangement other than a full payment and this is due and payable at the time of your assessment or reassessment. They cannot set a precedent that would allow them to accept less from everyone else.

They have one of the highest rates of collection activity in Canada as our taxes fund public goods and services. So what do you do if you can’t pay them in full?

Contact them immediately. You may be able to negotiate a payment schedule if you can’t pay the full amount but they generally will not let it be outstanding for over a few months. Know that they will continue to charge the interest and penalties on the past due amount.

This is important to note: Filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property.

If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home.

If you are a homeowner, having an experienced mortgage broker working for you can save you both time and money when seeking a solution to your CRA problem.

If you simply can’t pay the full amount of your back taxes, consider refinancing your mortgage and using the equity in your home, a consolidation loan is possible which can include tax arrears and other debts.

Mortgage brokers have access to lenders that will allow a refinance of your existing mortgage or second mortgage options to pay off outstanding CRA debt.

If you are a homeowner and are having issues paying off what is owed to the CRA this year, please give me a call to discuss at 1-888-561-2679 or email [email protected]

Debt and Canadian seniors

The number of Canadian seniors is growing quickly, and so is their debt.

A recently released report from Statistics Canada for Insights on Canadian Society takes a look at debt and assets among senior Canadian families.

It noted the changes in debt, assets and net worth among senior Canadian families from 1999 to 2016.

In recent years, household debt has increased. The level of debt and value of assets are especially important for the financial security of seniors.

Because income typically declines during the retirement years, seniors often need accumulated assets to finance their consumption, especially if they do not benefit from a private pension plan.

Debt can also be particularly problematic for seniors as repayment can be more difficult on a reduced income.

In 2016, the proportion of senior families with debt was 42%, up from 27% in 1999.

The report also highlighted that seniors now have a higher debt-to-income ratio with debt more than doubling since 1999 and meanwhile, real estate assets represented 52% of the overall increase in the average value of total assets over the period.

The question for many seniors with a large gain in real estate equity will be:

How do you use the equity built up in your home to help enjoy your retirement?

You have all this debt that you are making payments on and how to you find a way to manage it.

Many might consider a reverse mortgage a final resort but reverse mortgages are becoming more popular in Canada for the very reasons from the report above.

They can be used as a financial planning tool by turning an inactive asset into an active asset as part of plan to integrate real estate equity with other investments such a pensions and RRSPs.

When it comes to the resulting cash flows from a reverse mortgage, Canada Revenue is very clear – they are not taxable and will not affect any current pension income being received.

Funds from a reverse mortgage are also tax-efficient as part of a financial planning process as it might reduce the cash withdrawals from current investment assets which can control how much tax is being paid.

More Canadians are now house-rich, but income poor so a reverse mortgage is becoming a more important option for those that have not saved enough for retirement but have equity in their home because they paid off their mortgage by retirement.

In a recent survey by the non-profit Investor Education Fund, half of all households surveyed said they believe they will exhaust their savings in the first 10 years of retirement.

Some hard decisions may result from that such as being forced to sell or downsize a home. We already know that today’s active seniors want to age in place in their current homes.

If you would like more information about how you can incorporate a reverse mortgage into your retirement planning or discuss how you might eliminate some of your consumer debt to improve your monthly cash flow, give me a call at 1-888-561-2679.

Mortgages for self-employed

It is no longer as easy as it once was for the self-employed to obtain mortgage financing.

A few years ago, you could tell your banker how much you made, look them in the eye and then promise you would make your payments. As long as you had a great credit rating, that was good enough then, but not any longer.

Now, you have to provide a whole lot of paperwork and actually prove that you have the ability to make your payments.

My best piece of advice for someone who is self-employed and looking to obtain a mortgage whether it is to purchase a property for the first time or moving up, refinancing a mortgage or looking to purchase an investment property is be prepared.

Here are a few pointers that could make the process go smoother:

  • Start early. Meet with your mortgage broker well in advance to discuss what is required to obtain a pre-approval for your financing.
  • Ensure that all your taxes are filed and that you don’t owe anything to the CRA. You will need your last two years Notice of Assessments from the CRA at a minimum.
  • The larger the down payment, the better. Lenders want to see that you have upfront equity. You must have a minimum of five per cent of your own funds and a minimum 10% down payment.
  • Have on hand your GST return, business licence (if you don’t have one, get one.) and the Articles of Incorporation for your company.
  • You will need your last two to three years T1 Generals which must be prepared by an accountant.
  • Declare a reasonable income for your profession on your tax return. You might suggest to your accountant that they have a conversation with your mortgage broker if you are considering mortgage financing.

You will want to pass along this note to your accountant – the creative accounting methods used to reduce the amount of personal income tax that you pay is now hindering your ability to obtain mortgage financing. 

If the income you report on your tax return is low, you are going to have to work harder to justify to a lender that you have the ability to qualify for a mortgage.

An example of that is dividend income. It might be a great idea for tax purposes but it’s a bad idea if you will be requiring mortgage financing.

Most lenders consider dividend income as a one-off bonus and will reduce your qualifying income by that amount. If there is a history of dividend income we may be able to request an exception from the lender but I wouldn’t count on it.

There has been general tightening with all lending guidelines and also some extreme changes. Because of all the changes it is that much more important that you work with an experienced mortgage broker.

You may have to work a little harder and provide more documentation, but there are still many options available to the self-employed, so please give me a call 888-561-2679 to ensure that you are in the very best position when it comes time to arrange your mortgage financing.

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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