Mortgage penalties!

[shirinsa]

Hi Everyone,

Firstly, I wish everyone a bright and happy 2020.

I am planning to buy a new home in Ontario. It is a part of my job relocation. I have decided to sell my old house. I have signed a 4-year mortgage contract when the time of buying my old house. Now I have to break my contract early before the term ends. I have heard about mortgage penalties in Canada. I know it will be difficult for the lender if I do it. That is why they are asking for a mortgage penalty.

But if unexpected incidents happen in our life, then what can we do? One of my friends has suggested me to seek advice from any mortgage broker. But I am confused that how much will be the estimated amount of money that I have to pay to the lender. If anyone had broken your existing mortgage in a similar situation like this, please share how did you manage it.

Thanks!

[Kent Border Kenny]

The costs to settle early will have been set out in the original documentation, and in general there’s no way around them.

[Sarnie]

Kent Border Kenny said:

The costs to settle early will have been set out in the original documentation, and in general there’s no way around them.

^This.

It will have been detailed in your illustration and mortgage offer that you agreed to when they gave you the mortgage.

There's nothing a mortgage broker can help you with here.........

[UpTheIron]

Are portable mortgages still a thing? i.e. the lender may waive any penalty if the new mortgage is of equal size or greater and you stay with that lender.

[Sarnie]

UpTheIron said:

Are portable mortgages still a thing? i.e. the lender may waive any penalty if the new mortgage is of equal size or greater and you stay with that lender.

Yes they are but the OP is moving to Canada......

[crofty1984]

Sarnie said:

Kent Border Kenny said:

The costs to settle early will have been set out in the original documentation, and in general there’s no way around them.

^This.

It will have been detailed in your illustration and mortgage offer that you agreed to when they gave you the mortgage.

There's nothing a mortgage broker can help you with here.........

Unfortunately I was in the same boat recently. Looked at my docs - £250 charge to leave early. Not bad I thought. Then realised that was the charge to be allowed to leave early. The actual penalty for leaving early was a further £4,000!

[Sarnie]

crofty1984 said:

Unfortunately I was in the same boat recently. Looked at my docs - £250 charge to leave early. Not bad I thought. Then realised that was the charge to be allowed to leave early. The actual penalty for leaving early was a further £4,000!

The £250 is the admin fee for closing the mortgage account down.......the £4k is the ERC.....

[rufusgti]

Do you have to pay anything at all if you have come to the end of your deal and would like to pay the remaining balance off with savings?

[Kent Border Kenny]

rufusgti said:

Do you have to pay anything at all if you have come to the end of your deal and would like to pay the remaining balance off with savings?

If you are out of your fixed rate period, then generally no, there are no restrictions or fees.

[untruth]

I was in this boat, moving abroad to US, needed to sell house. On paper it just about made sense to rent it, but with a lot of risk, need to get re-approval through mortgage provider, and risk of international taxation on the property and income from it. I looked at paying the mortgage and renting it to a family/friend for a reduced rate to simplify it a little bit.

One approach is to pay the mortgage and find a guardian for the property until end of the term - that may work out possible for you, if a bit of a squeeze on finances whilst you do it.

I concluded paying the early repayment penalty was the most sensible option, and I didn't have the liquidity at the time to keep paying down on a house. In conclusion, it was a good decision!

[untruth]

Also, just to add look carefully at Capital Gains taxes in Canada. When I relocated to the USA, my sale was planned to complete before I moved, but got held up for a few weeks by some messing around with the buyer.

I ended up completing 2 weeks into being in the US where I was then also a taxpayer. I was liable for capital gains but thankfully had poured a ton of money into an extension that year and so I could offset the gains with that... otherwise it would have cost me a good 10+ grand.