# Mortgage advice needed please



## KLR650 (Sep 12, 2010)

Our mortgage is coming up for renewal in June, and we were planning on paying off the remaining principal. Doing so would deplete most of our cash reserves (would still have enough for emergencies). Then a job posting came up that my wife has applied for and that we hope she lands. The job is in a city 4 hours away from us.

If she gets the job, we would like to buy a house in the new place and sell this one. These are my concerns:

-If we pay off this mortgage, we won't have enough for a down payment on the new house. I know we could make an offer conditional on the sale of our house, but in my mind this would limit our bargaining power for a new purchase, also we would be in a rush to sell this house. 
If we don't pay off any principal right now we'd have enough cash for a down payment for a non-CMHC insured mortgage on the new place. We could afford to carry 2 mortgages for a few months if need be. 

-If we remortgage this house now, how does it work to transfer the mortgage to another house? Would we typically have to pay substantial fees? Would it be smarter to opt for an open mortgage for our June renewal? We will definitely need a larger mortgage for our next house, as we're going to upsize, plus the new location is more expensive.

Any advice is greatly appreciated.


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## the-royal-mail (Dec 11, 2009)

Glad to hear you have a good supply of cash on hand. 

Well, it would be my opinion that you hold off on putting any more money into your existing house at this time. Just continue to make the payments until you get the possible job and move underway and sell it. It makes no sense to deplete your cash reserves and then have to waste money on CMHC fees for new house.

I also would suggest not upsizing your new place. Why do that? You came pretty close to being mortgage free and the new place will be more expensive. Between that and all the moving costs, I would recommend remaining at your current standard of living unless there is something really wrong with your current lifestyle that you do not say.

Good luck.


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## Spudd (Oct 11, 2011)

You could rent in the new town for a year before buying. That would give you a chance to get used to the town and know which part of town you really want to live in, as well as keeping a good eye on the MLS listings so you could wait for your dream home, instead of rushing to buy something because you have to move. This would also have the added benefit of giving you lots of time to sell your old house and then you'll have the big chunk of cash to use on the new house.


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## NotMe (Jan 10, 2011)

I wouldn't eliminate those cash reserves either, myself. I would if I had to renew get an open mortgage for the shortest term.

I think though you should wait until there's an accepted job offer before worrying too much about what if's.


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## FrugalTrader (Oct 13, 2008)

Personally, I would go with the open mortgage until you get more clarification on the new job. You may pay a higher rate for a short period of time, but it will leave you with more options.


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## Just a Guy (Mar 27, 2012)

I too would suggest a short term open mortgage, say 6 months. That should give you the time required to find out and maybe even move and sell. If not, you could always renew for another 6 month open.


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## birdman (Feb 12, 2013)

Lots of choices with another one being to pay down your mortgage and then 100% finance the purchase of your new home with the lender taking a mortgage for 100% ofthe purchase amount and registering the mortgage over both properties. This is called an inter-alia mortgage. This would most likely be done on a demand loan basis at a prime rate or slightly above basis. When your existing home sells you apply the proceeds on your loan and then decide where to go from there. Similarly, you could perhaps 100% finance your new home by taking out a mortgage for whatever amount you wish and then getting a LOC for the balance with the LOC being secured by a mortgage on your existing home. 
And yes, there will be legal, appraisal, inspection and perhaps other fees involved and thats where you may save a few $$ by taking out only one mortgage and registering it inter alia over both properties. Of course there are also moving, realtor commission, interest expense pending the sale of your existing home, and perhaps other expenses (appliances, painting, minor renos, etc). I would not count on transferring you mortgage as this is normally only done at the pleasure of the lender and from my perspective this just adds some more uncertainty. Perhaps talk to a lender in the town you are moving to and see what they have to say. Consider talking to the same financial institution you are presently dealing with and maybe even a broker. Your realtor may also be able to assist. As stated previously, saving your existing cash is another option. 
Best to do what you are doing know and understanding what is involved and your options. Good luck.


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## Rusty O'Toole (Feb 1, 2012)

I would suggest you pay off the mortgage. Then get a home equity line of credit. This does not cost the fees a mortgage does, and you are not obliged to use it. But if you need some quick cash for a down payment, it is there.

It would be wasteful to pay the fees of a new mortgage if you don't have to.


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## Mortgage u/w (Feb 6, 2014)

If your planning to take a mortgage on your new place, then do not pay off your current one. You can port the mortgage to the new place keeping the same terms and conditions for little or no fees at all - depending your financial institution (exept for lawyer fees which you cannot escape)

If you do not plan on carrying a mortgage on the new place, then its rather difficult to judge - depends on your comfort level. You can always pay it off and open an LOC in case you need for DP but that would incur costs if you don't already have a HELOC set-up. The problem with this scenario is you will not be able to port the mortgage because HELOCs are collateral mortgages (non-transferable, in other words).

If you do not plan on carrying a mortgage, then you can renew for either a 6mth open term (interest rate hovering 3.95% right now) or a variable rate (rate hovering prime -0.60%). If you do not port the variable rate, penalty is only 3mth interest.


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## KLR650 (Sep 12, 2010)

Some responses to comments made:

RM--We need to upsize as we have an 18 month old and another one (well hopefully just one in there!) due in December. Our current house is worth about $230k, will be looking to spend around 400k I would guess on the new place.

NotMe--Our mortgage comes up for renewal on June 6th, therefore we need to decide ASAP what direction we're heading. 

Spudd--I agree, I would rather rent for a while and take time to find the right house, however my SO insists that she will only move once. She grew up in the place we would be moving to, and her parents are there, so its not like we'd be going in blind.

So basically there are four main choices suggested so far:

-Take out short term, open mortgage. What kind of rate can we expect? The renewal forms from our current lender, RBC, had an option for a 6 month open at something like 6% !?!? (edit) I see mortgage u/w said to expect a rate of 3.95% for open 6 mo...sounds more like it

-Pay off current mortgage and get an inter-alia mortgage for new place. Is this the same as bridge financing?

-Pay off current mortgage and get a HELOC for new place.

-Port the mortgage...I assume this means to transfer it? We will definitely need a mortgage on the new house. Note that mortgage terms would have to be changed as we'd be borrowing more...is this option still feasible? 

I know we need to sit down with our lender and mortgage broker about this...just looking for un-biased advice before doing so. This is my first time going through the mortgage process as my wife had already bought our house before we met...Thanks!


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## Just a Guy (Mar 27, 2012)

Posted rates and real rates are completely different, your open mortgage will be a lot less than 6%. 

The inter-Alia mortgage isn't bridge financing it's more of a blanket mortgage (one mortgage covering multiple properties. I can't see this really helping you in this case as you don't have the second property yet and you want to sell your first one. I'm thinking the legal fees and appraisals will make this a bad option. 

Porting would probably cost you more legal and appraisal fees, plus they may sneak in a bit of a penalty (some admin fee) as well. Then again, you'd be hit with these fees if you set up a new mortgage anyway. So this may be a wash, but lots of paperwork. 

Bridge financing is more like an unsecured loan at higher rates to cover the period between selling your old place after buying your new one. The idea being, once you sell, you'll make a big paydown, but you don't have the money yet. 

A HELOC would probably require an appraisal and legal fees to set up, but you wouldn't be paying interest on a mortgage since you're not using the funds unless you buy a place.


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## Mortgage u/w (Feb 6, 2014)

KLR650 said:


> So basically there are four main choices suggested so far:
> 
> -Take out short term, open mortgage. What kind of rate can we expect? The renewal forms from our current lender, RBC, had an option for a 6 month open at something like 6% !?!? (edit) I see mortgage u/w said to expect a rate of 3.95% for open 6 mo...sounds more like it
> 
> ...


Since you know you'll be needing a mortgage on your new home, I would refinance the current one for an amount close to what you're expecting to have on the new home. The advantage of doing this is that you will be locking in a good rate today. Then, once you port (transfer) the mortgage to the new home, it will only cost you legal fees and the mortgage is already set-up. If you borrowed too much, you can always pay it back later.

If you are uneasy with this or too many variables with this scenario, then renew your current mortgage for an open 6mth term. Yes, 3.95% is the current rate - I work as a morgage underwriter and this is the rate I currently offer.

Definately sit down with a mortgage lender to explore your best options.


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## MRT (Apr 8, 2013)

I would definitely go with an open term, as it provides the most flexibility and the least cost, and because you don't know for sure if you will move.

You can always port and increase it if you move, and convert at any time to fixed or variable rate term (typically without cost), while if you don't move you can just pay it off whenever you want without penalty since it is open. The rate is not terribly relevant, given that you would only have it for a short period of time. 

Beware the HELOC option - some lenders charge a higher fee to close a HELOC within a certain period of time of opening it (e.g. one year). They call it an 'early discharge fee' that is meant to recoup some costs from setting it up (since it does cost the lender money to do so vs a PLC). I think an open term is clearly best here, until you know for sure what you are doing.


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## Rusty O'Toole (Feb 1, 2012)

I wasn't suggesting you get a HELOC on your new place. You don't have a new place. I thought the problem was that you did not know if you were going to move or not, but your mortgage is up for renewal NOW. And you have to decide whether to pay it off and be mortgage free, or renew it.


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## lb71 (Apr 3, 2009)

We were in a similar situation to you and went the HELOC direction. The mortgage renewed in December and we knew we were going to move in the next year, so we converted the balance into a HELOC. This gave us the flexibility to close it at will and also gave us access to the down payment. So in your case, you would have access to about 150k in a LOC (65% is the new rules according to the mortgage consultant at the bank) if you paid off the mortgage and converted.


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## KLR650 (Sep 12, 2010)

Thank you to all for your advice. Wife did not get the job, which is ok, however we are still looking to move to that city whenever she can find work there. 

We meet with the bank on Tuesday. I'm leaning towards renewing with a 2 yr fixed term instead of paying it off so that we have cash for a d/p if and when we do move.

As I said, our mortgage is currently with RBC...their "valued client" rate for 2 yr fixed is 2.84%, which seems pretty competitive. We don't really have much time to shop around...what do you think, mortgage u/w?


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## heyjude (May 16, 2009)

Well, that makes your decision easier. No urgent need to move, and a very competitive mortgage rate. Your plan will keep your cash liquid just in case an opportunity to move presents itself.


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## MRT (Apr 8, 2013)

Why not ppay off the mortgage and open a HELOC on your current home, assuming you aren't moving within a year (when an early discharge fee on the HELOC might otherwise apply)?

I am assuming the interest payable over 2yrs exceeds the setup and discharge fees that apply to a HELOC, along with any potential 'free and clear' discount from your home insurer (some insurers offer a discount if there is no mortgage on the property, and a HELOC, even if it has a zero balance, voids that discount), but I would confirm first.

I also assume you don't have a guaranteed, AFTER-TAX return of 2.84% for the funds that would be used to payoff the mortgage (and I doubt such an investment exists anyway), so why hold cash while carrying debt? The HELOC will allow you to access down payment, if an opportunity arises.


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## dougboswell (Oct 25, 2010)

KLR650 said:


> Thank you to all for your advice. Wife did not get the job, which is ok, however we are still looking to move to that city whenever she can find work there.
> 
> We meet with the bank on Tuesday. I'm leaning towards renewing with a 2 yr fixed term instead of paying it off so that we have cash for a d/p if and when we do move.
> 
> As I said, our mortgage is currently with RBC...their "valued client" rate for 2 yr fixed is 2.84%, which seems pretty competitive. We don't really have much time to shop around...what do you think, mortgage u/w?


2.84% is on the high side. A 2 year fixed can be had for as low as 2.59% today. Another consider is a 3 year fixed where a rate of 2.49 can be found. This is .35% lower than the bank's 2 year offer.


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## dougboswell (Oct 25, 2010)

A couple of comments. It was suggested for the poster to refinance the mortgage. With the new rules in place and the home valued at $230000 they would be able to only refinance up to $164000. If they were looking at a new $400000 home this would not work. 
A bridge loan will only be granted if both properties have been sold but the closing dates do not match. ie. your present home does not close until after your new home does. The lender would require complete offers of sale and purchase to show that the the present home has been sold.


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## Mortgage u/w (Feb 6, 2014)

KLR650 said:


> Thank you to all for your advice. Wife did not get the job, which is ok, however we are still looking to move to that city whenever she can find work there.
> 
> We meet with the bank on Tuesday. I'm leaning towards renewing with a 2 yr fixed term instead of paying it off so that we have cash for a d/p if and when we do move.
> 
> As I said, our mortgage is currently with RBC...their "valued client" rate for 2 yr fixed is 2.84%, which seems pretty competitive. We don't really have much time to shop around...what do you think, mortgage u/w?


2 year rate today is at 2.59%.....so the RBC rate is not that competitive. If they can't match, seek a mortgage broker and they will definately get 2.59% or less.


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