# Mortgage Advice Needed.



## NATHAN75 (Nov 3, 2015)

Hi Everyone,

I need advice regarding my mortgage situation.

We bought a home 2 years ago and since then it has gone up in value, which is great.

I was laid off a while back and so with only one income its been tough.

My wife and I have decided to move to another area and using our equity we can buy another cheaper home - a new build too.

This way we can pay down our mortgage and once I find employment we should be back on track.

My wife has been offered a job in the new area and so we are thinking about buying a home off plan and wait for our home to be built as it is much cheaper.

Our mortgage penalty will be at least $8,000 if we pay it up in full, our rate is 2.94 % on a 5 year fixed rate - we are 2 years into the mortgage.

Also we will have to rent a place while our home is being built (which will be approx 6 months) as most rentals require at least a year lease and if we break it we will probably have to pay for the whole year.

So we are looking at the minimum of $18,000 we will be spending - maybe even more - which to me is dead money.

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If we port our mortgage to another property and reduce the principal to a smaller amount- that will mean we don't have to lose as much, as the penalty will be less and we wont have to rent at all.

The problem is that the properties that are already built are a lot more than we want to spend (by at least $150,000) and so we will be in the same situation as we are in now. We don't really want to buy a second hand home as we are used to new and the benefits of that (warranty, house history etc)

So our 2 choices are.

1) Sell pay up our mortgage, pay the $8,000 penalty, rent approx $10,000 maybe more and wait for the cheaper house to be built - we will have a lot less of a mortgage ($150,000) but we will be losing at least $18,000.

2) Port our mortgage to a finished home and put down as much as we can from our equity, but we will still have a mortgage of at least $150,000 to pay with only 1 income until I find a job, but we wont have to pay as much of a penalty or rental fees, so that extra money will be able to be put into the house.

I hope this all makes sense, any suggestions would be very much appreciated.

Thanks Nat.


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

Why not simply stay in your current house until the build is complete?

You can still port the mortgage penalty free and you will avoid renting. I know new builds are hard to gauge their completion but you should at least get a good idea. Reserve the lot with the builder and put your house for sale. Once you get a buyer, try to set the closing dates as close as possible to the completion date of the new build. Even if you're off by a few weeks or months, it won't be much. If lucky, you can complete your sale and pay the buyer rent to stay in your home until the build is 100% complete.


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## birdman (Feb 12, 2013)

Tough call but one thing to remember is that after you pay the penalty and payout the mortgage you will not be making mortgage payments but this will be offset by rent. Accordingly, I would not look at your rent as a cost as it more or less replaces your mortgage payment which you will not be making. Looking at it this way you are only out the 8 grand.


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## NATHAN75 (Nov 3, 2015)

Mortgage u/w said:


> Why not simply stay in your current house until the build is complete?
> 
> You can still port the mortgage penalty free and you will avoid renting. I know new builds are hard to gauge their completion but you should at least get a good idea. Reserve the lot with the builder and put your house for sale. Once you get a buyer, try to set the closing dates as close as possible to the completion date of the new build. Even if you're off by a few weeks or months, it won't be much. If lucky, you can complete your sale and pay the buyer rent to stay in your home until the build is 100% complete.


Thanks for the advice, the reason we cannot stay is because my wife has a job offer in the new area, we could still stay but then there is the risk that another job for her may not come up for a while.

Thanks.


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## Just a Guy (Mar 27, 2012)

I agree you should try to stay, moreover you may find your house takes morethan six months to sell now. You didn't specify where you live but many places are experiencing a downturn in real estate sales right now with all the uncertainty in the economy...


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## NATHAN75 (Nov 3, 2015)

frase said:


> Tough call but one thing to remember is that after you pay the penalty and payout the mortgage you will not be making mortgage payments but this will be offset by rent. Accordingly, I would not look at your rent as a cost as it more or less replaces your mortgage payment which you will not be making. Looking at it this way you are only out the 8 grand.


Hi Frase thanks for the advice, that makes sense, I hadn't looked at it that way.

Cheers. Nat


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## NATHAN75 (Nov 3, 2015)

Just a Guy said:


> I agree you should try to stay, moreover you may find your house takes morethan six months to sell now. You didn't specify where you live but many places are experiencing a downturn in real estate sales right now with all the uncertainty in the economy...


Hi 

Thanks for your advice.

I understand your point and it does make sense, I live in the GTA so homes pretty much sell within 2 weeks max.

Its all good food for thought though, cheers.

Thanks Nat.


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

NATHAN75 said:


> Thanks for the advice, the reason we cannot stay is because my wife has a job offer in the new area, we could still stay but then there is the risk that another job for her may not come up for a while.
> 
> Thanks.


I agree however you need to sell and that can take a while. You will be sitting there regardless.


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## NATHAN75 (Nov 3, 2015)

Mortgage u/w said:


> I agree however you need to sell and that can take a while. You will be sitting there regardless.


Your right, thanks.


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## Nerd Investor (Nov 3, 2015)

One nice perk to keep in mind, based on your situation it sounds like your moving costs should be deductible against your wife's new salary. 
So looking at your _after-tax_ cost of some of these expenses might make it a bit more palatable.


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## nobleea (Oct 11, 2013)

Nerd Investor said:


> One nice perk to keep in mind, based on your situation it sounds like your moving costs should be deductible against your wife's new salary.
> So looking at your _after-tax_ cost of some of these expenses might make it a bit more palatable.


I can't confirm it, but I've read that the mortgage penalty cost is tax deductible as part of 'moving expenses'. As long as it's 40km closer to your new work. This was on the turbotax website

Anyone know for sure?


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## welsh-investor (Jan 5, 2017)

Does the new job pay $18,000+ more/year? The move will pay for itself in the first year.


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## Nerd Investor (Nov 3, 2015)

nobleea said:


> I can't confirm it, but I've read that the mortgage penalty cost is tax deductible as part of 'moving expenses'. As long as it's 40km closer to your new work. This was on the turbotax website
> 
> Anyone know for sure?


Correct, there is quite a bit you can deduct, including the mortgage penalty.


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## NATHAN75 (Nov 3, 2015)

Hi guys just read your latest posts thats great information, I shall do some research on this - thanks so much for the advice !!

Cheers !! Nat.


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## My Own Advisor (Sep 24, 2012)

Nat:
http://www.homeguardfunding.ca/index.php/blog/post/110/is-mortgage-penalty-deductible?

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/xpnss-eng.html

Also, not sure if you did it or not?....don't be in a rush to buy a new home in the new area. Rent and take your time to learn the area, market, etc.


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## steveh85 (Jan 11, 2017)

frase said:


> Tough call but one thing to remember is that after you pay the penalty and payout the mortgage you will not be making mortgage payments but this will be offset by rent. Accordingly, I would not look at your rent as a cost as it more or less replaces your mortgage payment which you will not be making. Looking at it this way you are only out the 8 grand.


Yap! Well said. You have made a very insightful point.


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