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:
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