Mortgage penalty to close and sell

Discussion in 'Real Estate General Discussions' started by Rocky, Nov 2, 2011.

  1. Rocky

    Rocky Active Member

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    I am new to this real estate world and am looking for advise on what would be the best approach in the event of a condo that i would like to close and put back on the market. I bought a pre construction a few years back and now its coming due for occupancy. I will need mortgage of course to transfer the title over to my name.

    What would be the best approach in the event of one trying to sell the unit right after purchasing it. I will need to sell this condo as the area and size of this unit doesnt work for my family any more and I did not get an assignment clause at the time as i wasn't planning for such changes.

    Are there any such options out there that i should opt for to avoid any mortgage cancellations fees.


    What kind of expenses am i looking at other than mortgage cancellation fees.

    All advise is much appreciated.

    Thank You
     
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  2. Kevin86

    Kevin86 New Member

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    You should get an open mortgage (which means it can be paid back any time without penalty). Although the Open ones come with a little higher interest rate, but that's worth it if you sell soon after closing and avoid mortgage breaking penalties.
     
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  3. hodgkinsken

    hodgkinsken Active Member

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    Or you can go with a variable mortgage with a option to prepay (see the ING mortgage that allows you to pay up to 25% of your mortgage at anytime during the year). Most variables charge you a 3 month penalty. When you close you have to have your lawyer instruct them to discharge the mortgage by first paying the 25% like you're allowed to. Then the penalty is counted on the remaining 75% balance.

    Variable example:
    On a $300,000k mortgage you'd prepay $75,000 leaving you with a balance of $225,000. 3 months interest at 3% (current prime) = ~$1,700. You're also likely going to have to hold the property for about 3 months so you're also going to eat the carying costs of the mortgage (on the full $300k) while the property closes. So add an additional $2,250. Total financing costs while you're selling would be about $4k.

    Open mortgage example:
    On a $300,000k mortgage you'd end up paying the interest costs for the same 3 months to close but no penalty. The best rate I could see for a 1 year (6 month was the same) was 6.3%. Again using simple math your financing costs would be ~$4,700.

    You'd have to do the math on which way works better.
     
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  4. Kevin86

    Kevin86 New Member

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    Homeline plan

    Yes, variable is good option too.
    I think if you get a homeline plan, that works like an open mortgage and can be paid off any time - my understanding is (bot not confirmed yet) that there is no penalty. My bank offered me last month prime + 0.5 for the homeline plan. But since I was going for the fixed term, I didn't get too much info about homeline.
     
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  5. aznbb4l

    aznbb4l New Member

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    Option 1: Open Mortgage
    Option 2: Home Equity Line of Credit

    both of these would offer flexibility and no penalty if you plan to sell right away...

    NEVER go for CLOSED mortgage
     
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  6. Seesus

    Seesus Active Member

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    Thank You for the advise. I am in a similar boat as the OP and have noted this advise for my reference.
     
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  7. aznbb4l

    aznbb4l New Member

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    No problem! Glad I can help!
    Keep in mind this is only the short term solution....
    if this is for long term, OPEN term & Home Equity LOC will cost a lot of $$!
     
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  8. Exodus

    Exodus Active Member

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    I was just wondering if you made certain that the builder will not allow you to assign your property. If you could assign it, you would save on the occupancy fee until the building registers and you gain title to sell.

    I guess alternatively you could rent it out to a tenent during this time.

    I also advise a variable, open mortgage since this will be a relatively short term mortgage (occupancy to final closing generally 6-12months in downtown Toronto rough estimate). Make sure you ask about the ability and conditions to port the mortgage for once you are ready to sell and move
     
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