How to: porting mortgage to preconstruction condo

Discussion in 'Real Estate General Discussions' started by Exodus, Feb 29, 2012.

  1. Exodus

    Exodus Active Member

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    I currently have a fixed term mortgage that matures in 2015. I also have a preconstruction that has a tentative occupancy date in January 2013. I am planning to sell my current residence and move into the preconstruction when it is ready for occupancy.

    I just had a meeting with my financial advisor about the various options for my mortgage when I move. It seems like there are two options: port my mortgage or break my mortgage contract. The fee for breaking my contract will be $10k+. So you can understand why I would lean on porting instead.

    With porting, I am given a deadline of 6 months. If I require an extension, it is at the sole discretion of the bank manager. As we all know, preconstruction occupancy dates and registration dates vary immensly. Not to mention how many days on the market my current residence will be listed for until it sells. With so many variables, it is difficult to estimate that registration of the condo would be complete within the 6month time limit.

    I am extremely flexible in terms of when I sell my current residence (since I have the option of moving back to my parents for the interim between waiting for occupancy).I want to take advantage of the spring real estate market to sell my current residence but understand that this may not happen because of the porting deadline.

    My question to you guys, is what are most people doing with your mortgages. Surely I can't be the only person faced with this dilemma of moving into a new construction. I need the most financially efficient way of moving. Your thoughts are greatly appreciated!
     
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  2. TheKingEast

    TheKingEast Senior Member

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    I'm in the same situation. I have no idea what to do. LOL
     
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  3. Toronto Rocks

    Toronto Rocks New Member

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    Mortgage

    Most lenders will only allow you to port within a certain time frame, check your Standard Charge Terms for the details. Ensure you have a long closing on your existing property to account for the delay in your new condo registration. Make sure that you have an Amortization Schedule to compare the the cost of the penalty vs. the potential savings on today's rates.
     
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  4. Xenosblitz

    Xenosblitz Active Member

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    There are a lot of variables here. What floor are you moving into? How many floors does the building have? Are you in the first phase or last phase of a complex? Does it have shared facilities with another phase?

    For example, if you were on the 10th floor of a 12 floor building, which has only 1 phase, I wouldn't worry too much. Your building will most likely register within 6 months of occupancy. But if you were on the 10th floor of a 60 storey building, you're in trouble. Builders move people in between 1-2 floors per week (most of them anyway). The further complication is if you share facilities with another building. There is a risk that the builder will register both buildings together (phase 1 and 2).

    There really isn't much you can do. The only things you can really do is to minimize your penalty by using your pre-payment option (the penalty is based on your balance outstanding), sell your unit during the occupancy period (if your rental costs/phantom rent costs are lower than your penalty), or try to get the buyer of your existing home to assume your mortgage (if you have this clause - but if your rate is unfavourable to the market rate, which it appears that it is, it will be extremely hard to do).
     
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  5. Exodus

    Exodus Active Member

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    That's just it. Too many variables to consider. Essentially it appears that there are three options for a home owner to transition to a preconstruction condo
    -break the mortgage and pay the fee
    -port the mortgage over to the preconstruction within a specified time frame
    -have the buyer assume the mortgage

    I was also considering the idea of renting out the current residence until registration of the preconstruction condo and then port the mortgage over. With this scenario I can better control the variables and prevent the 10k breaking fee, and choose when I want to put my current residence on the market ie. spring. But I heard that this may impact my taxes at the end of the year due to the fact that i rented out the old condo before selling it, since it would no longer be my primary residence. Anyone have any experience in this?
     
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  6. cdr108

    cdr108 Senior Member

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    no experience, but here's what comes to mind:

    - crystallization of capital gains/value of current residence as it no longer become principal residence. you will not have to pay taxes on CG up to that value; however, any future gains/losses will be subject to taxation. you may have to get an appraisal to determine market value atm it's no longer your principal residence.

    - rental income will have to be included as income

    - mortgage interest 'might' be tax deductible against the rental income since it's no longer principal residence


    as usual, all the above is for informational purposes and you should consult a tax professional.
     
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  7. rbt

    rbt Senior Member

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    Do speak to an accountant about this for your situation but it may not be as bad as you think.

    Normally what you can do is get an appraisal for the date you begin renting it out. You then make a kind of "fake sale" (I forget the real term) which you can record your primary residence gains against and you have a starting value for the rental period.

    When you sell, the gain (or loss) you are responsible for claiming is during the rental period only. You also have the benefit of being able to claim expenses that you couldn't when it was your primary residence such as a fresh coat of paint and other basic maintenance.
     
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  8. Xenosblitz

    Xenosblitz Active Member

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    You might be able to shelter your home entirely from capital gains even if you rent out the property (I'm assuming its just for a few months to cover your occupancy period for your new condo). The calculation for the principal residence exemption is as follows:

    Exemption = Gain * (Years Designated +1)/ Years Owned

    Its just one extra thing to consider. You might rent out your current home temporarily while you live in your new condo, then sell the old home when the final closing of the new condo approaches.

    I would consult with a tax expert though to see if the above can work. It appears at first glance to me it might work, especially if you really only own 1 home at a time (less chance CRA will come back at you since you didn't own 20 homes and tried to shelter multiple ones from tax - no abuse of the system).
     
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  9. neubilder

    neubilder Banned

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    Exodus, I'm in the same boat. I can't think of a way to port my mortgage other than transferring my mortgage to my rental property as a second mortgage, which I'm looking at doing. Also, you can usually pay down 20% - 30% of the value of the mortgage per year without penalty at any time (ie. at the time of transaction), so that will save you a good chunk if you end up paying it out. Otherwise the bank may let you put the funds into a locked high-yield account until your new place is registered. But this may not be worth it.
     
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  10. Exodus

    Exodus Active Member

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    I considered porting my mortgage to a pre existing property ( in this case, my parents house). Their house is fully paid for, so im not quite sure if that would work. Again, I don't have too much experience with mortgages.

    What did you mean about paying down your mortgage to save money if paying out? Or about putting funds into a high yield acct? I wasn't quite following it all
     
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  11. neubilder

    neubilder Banned

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    Most mortgages allow you to make a lump-sum overpayment of around 25% per year. So if you need to pay out your mortgage and the early penalty is say 3% and the mortgage amount is $200000, banks will let you reduce the amount subject to penalty by the prepayment amount of 25%. So now the penalty is 3% of $150000 instead of the original $200000, so instead of $6000 your penalty is $4500.

    The high-yield account (referring to high interest yield like a GIC or something) is only to offset the interest you will be paying on the mortgage amount if you transfer the mortgage to another property for a few months. If that money isn't making interest at a rate of close to what it's costing you then eventually it will cost you more than just paying out the mortgage.
     
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