Do You Need a Down Payment When Porting a Mortgage?
Yes, you do need a down payment with porting a mortgage however this down payment can still come from the sale proceeds of your home. Here’s what you need to know about how down payment works when porting a mortgage.
Down Payment Requirements in Canada
In Canada, you can put a minimum of 5% down on the first $500,000 of the purchase price and 10% down on the amount above $500,000.
When you put less than 20% down the mortgage must be insured. The insurance premium cost is added to the total mortgage amount. Insured mortgages can only be amortized over a maximum of 25 years.
When you put 20% down or more insurance is not required and your mortgage can be amortized over 30 years.
Porting a Mortgage Explained
Porting a mortgage refers to the process of transferring your existing mortgage to a new property. This is typically done when you are moving to a new home and want to take your current mortgage with you, rather than getting a new mortgage and potentially paying a penalty to break your existing mortgage.
Down Payment When Porting a Mortgage Example
Let’s look at an example:
You have found a property to buy as your next home and your offer to purchase has been accepted.
The purchase price is $800,000, and the deposit you made with your offer is $40,000. The $40,000 deposit you’ve made came from your line of credit.
If your current property sells for $720,000 and your current mortgage balance is $500,000 your sale proceeds will be $145,456, which is calculated as follows:
$720,000 Sale Price - $28,800 Realtor Fees (4.00%) - $3,744 HST on Realtor Fees - $500,000 Current Mortgage Balance - $400 Mortgage Discharge Fee - $40,000 Deposit to Pay Back (line of credit) - $1,600 Legal Fees for Sale = $145,456 Estimated Sale Proceeds
The closing costs for your purchase will be approximately $14,875, which is calculated as follows:
Closing Costs (Purchase Price: $800,000) $12,475 Land Transfer Tax $1,900 Legal Fees for Purchase $500 Appraisal / Valuation Fee = $14,875 Estimated Closing Costs
Because you will have $145,456 from sale proceeds and closing costs will be $14,875, you will have $130,581 available to put towards down payment.
$145,456 Estimated Sale Proceeds - $14,875 Estimated Closing Costs (with a purchase price of $800,000) = $130,581 Money available
Your plan is for your total down payment to be $160,000 (20%) which means you will need a mortgage amount of $640,000.
Since your current mortgage is only $500,000, your new mortgage will be done as a “port and increase” with a blended interest rate.
The blended interest rate will be a rate based on the rate of your current mortgage and the currently available rates.
Note: Some lenders don’t use blended rates and instead will structure it as a second mortgage for the difference amount with its own term maturity date.
Based on this example, when all is said and done, you will have $10,581 left over for your pocket. Calculated as:
$130,581 Money Available + $40,000 Deposit Already Given - $160,000 Down Payment Amount (20.00% of $800,000.00 purchase price) = $10,581 Money left over for your pocket
We provide all of our clients with a PDF document that details all of these numbers in an easy-to-read way so that you’re always comfortable and know what to expect:
Contact Us to Help You With Your Mortgage Needs
If you would like help with your porting your mortgage we can help. Get in touch with us today and we’ll take care of the rest!