Porting Your Mortgage or Using a “Blend and Extend” Product to Purchase a Different Property

General Karen Vella 3 Oct

Introduction

Buying a new property is an exciting endeavor, but it often comes with financial considerations, especially if you already have an existing mortgage. Two common options to explore in such situations are “porting your mortgage” and obtaining a “blend and extend mortgage.” These strategies can help you navigate the transition to a new property without incurring hefty penalties or high-interest rates. In this blog post, we’ll look at the details of these options and help you make an informed decision for your real estate journey.

Porting Your Mortgage

Porting your mortgage involves transferring your existing mortgage to your new property. This option is suitable for homeowners who want to maintain their current mortgage terms, such as interest rate and maturity date, while upgrading to a different property. Here’s how it works:

  1. Eligibility: Not all mortgages are portable, so check with your lender to confirm if your mortgage is. Typically, fixed-rate mortgages are more likely to be portable than variable-rate mortgages.
  2. Property Assessment: Before you proceed, your lender will assess the new property to ensure it meets their lending criteria. This includes an appraisal to determine its current market value.
  3. Application Process: You’ll need to apply for a mortgage on the new property and provide the necessary documents, just like you did when you initially obtained your mortgage.
  4. Top-Up Mortgage: If your new property costs more than your old one, you may need to apply for a top-up mortgage to cover the difference.

Benefits of Porting Your Mortgage:

a. Maintain Favorable Terms: Porting allows you to keep your existing mortgage terms, including the interest rate, which can be advantageous if rates have increased since you first obtained your mortgage.

b. Avoid Penalties: You can avoid prepayment penalties associated with breaking your current mortgage contract prematurely.

c. Simplified Process: Porting streamlines the mortgage process, as you’re essentially carrying over your existing mortgage.

Blend and Extend Mortgage

A blend and extend mortgage is an alternative option for homeowners looking to buy a new property while keeping their existing mortgage. Unlike porting, this approach involves blending your current mortgage rate with the current market rate to create a new interest rate, usually for a longer term. Here’s how it works:

  1. Assessment: Your lender will evaluate your existing mortgage and the new property, similar to the porting process.
  2. Interest Rate Blend: Your lender will calculate a weighted average interest rate, considering your current mortgage rate and the prevailing market rate.
  3. Extended Term: The new blended rate is applied to an extended mortgage term, typically five years. This can result in lower monthly payments.

Benefits of a Blend and Extend Mortgage:

a. Flexible Terms: This option provides flexibility by extending your mortgage term, reducing your monthly payments.

b. Market-Rate Advantage: If current market rates are lower than your existing rate, blending allows you to benefit from lower interest costs.

c. No Penalties: You avoid prepayment penalties associated with breaking your current mortgage contract, just like with porting.

Conclusion

When buying a new property with an existing mortgage, you have options to consider. Porting your mortgage allows you to transfer your current mortgage to your new property, maintaining your existing terms and avoiding penalties. On the other hand, a blend and extend mortgage can help you take advantage of current market rates and potentially lower your monthly payments.

Before making a decision, consult with your lender or a mortgage professional to assess which option is most suitable for your financial situation and long-term goals. Understanding these mortgage strategies can help you make a well-informed choice as you embark on your journey to a new property.

De-coding the Bank of Canada’s September 2023 Rate Announcement and Its Impact on Mortgages

General Karen Vella 19 Aug

Introduction

When it comes to your financial well being, few things have as much influence as interest reates.  The Gank of Canada, the country’s central bank, plays a crucial role in determining these rates.  If you’re a homeowner or aspiring to be one, understanding how the Bank of Canada’s September 2023 rate announcement can affect you mortgage is vital.  Let’s break it down in simple terms.

The Bank of Canada’a Role

The Bank of Canada is responsible for maintaining a stable economy by influencing interest rates.  One of its key tools is the policy interst rate, also known as the overnight rate.  This reate influences the borrowing costs for banks, which in turn affects the rates they offer to consumers.

September 2023 Rate Announcement

In its September 2023 rate announcement, The Bank of Canada has three options: raise, lower or maintain the policy interest rate.  Here’s how each scenario can impact your mortgage:

  • Rate Increase:  

    If the Bank of Canada decides to raise the policy interest rate, it means borrowing becomes more expensive for banks.  In response, banks may raise their own lending rates, including those for mortgages.  This could affect both new and existing mortgage holders.

    • New Mortgages:  If you are planning on buying a new home, higher interest rates could mean higher monthly payments.  This might influence how much house you can  afford, as higher rates can lead to increases borrowing costs and lower the amount you qualify for.
    • Existing Mortgages:  If you already have a mortgage with a varaiable interest rate, your payments might go up when interest rates rise.  This is because your lender’s rate is often linked to the prime rate, which can be influenced by the Bank of Canada’s policy rate.

  • Rate Decrease:  

 If the Bank of Canada decides to lower the policy interest rate, borrowing becomes cheaper for banks.  This could lead to reduced mortgage rates.

    • New Mortgages:  Lower interest rates could make homeownership more affordable, allowing you to potentially buy a larger or more expensive home.  It might also lower your monthly payments, freeing up some of your budget.
    • Existing Mortgages:  If you already have a mortgage with a variable reate, a reate decrease could lead to lower monthly payments.  Additionally, some fixed rate mortgages could become more attractive if rates drop significantly.

  • Rate Unchanged:

If the Bank of Canada maintains the policy interest rate, it suggests that they wee the current economic conditions as appropriate.  This could mean that mortgage rates might remain      relatively stable, at least in the short term.

Planning Ahead:

It’s important to note that even if the Bank of Canada announces a change in the policy interest rate, the actual impact on mortgage rates might not be immediate.  Lenders might take some time to adjust their rates, and the degree of change can vary.

When it comes to your mortgage, being informed is key.  Keeping an eye on the Bank of Canada’s announcements and understanding how they relate to your mortgage can help you make well-informed decisions about your finances.

Conclusion:

The Bank of Canada’s 2023 rate announcement can have a direct impact on your mortgage.  Whether they raise, lower or maintain the policy interest rate, it influences how much you’ll pay for your home over time.   By understanding the potential outcomes and staying informed, you can navigate these changes and make the best choices for your financial future.

 

 

Understanding Variable vs. Fixed Rate Mortgages

General Karen Vella 24 Jul

When it comes to purchasing a home in Ontario, one of the most crucial decisions you’ll face is choosing between a variable rate and a fixed rate mortgage. Both options have their advantages and disadvantages and understanding the differences between them can help you make an informed choice that aligns with your financial goals and risk tolerance. In this post, we’ll compare variable and fixed rate mortgages, shedding light on the benefits and drawbacks of each to aid you in making the right decision for your homeownership journey.

VARIABLE RATE MORTGAGES

1. Variable rate mortgages, also known as adjustable-rate mortgages (ARMS), have an interest rate that can fluctuate over time based on changes in the market interest rates. Typically, variable rate mortgages are tied to the Bank of Canada’s overnight rate, which influences the prime rate offered by major financial institutions in the country. Here are some key points to consider.

ADVANTAGES:

a. Lower Initial Rates: Variable rate mortgages usually start with a lower interest rate than fixed rate mortgages, making them an attractive option for borrowers seeking more affordable monthly payments at the beginning of the loan term. (This is not always the case however, please check with a mortgage professional.)

b. Potential Savings: If market interest rates decrease, borrowers with variable rate mortgages can benefit from lower interest charges and potentially save money over the term of the loan.

DISADVANTAGES:

a. Rate Volatility: One of the biggest risks associated with variable are mortgages is their inherent unpredictability. As interest rates fluctuate, your monthly payments can change, potentially making budgeting more challenging.

b. Financial Uncertainty: Variable rate mortgages may not be suitable for risk averse borrowers who prefer stable predictable payments.

FIXED RATE MORTGAGES

1. Fixed rate mortgages on the other hand, come with an interest rate that remains constant throughout the entire loan term, offering borrowers a predictable monthly payment. The interest rate is determined at the beginning of the loan and does not change, regardless of any fluctuations in the market interest rates. Here are the main aspects to consider:

ADVANTAGES:

a. Predictable payments: With a fixed rate mortgage, homeowners can accurately budget their monthly expenses as the payments remain constant over the loan’s lifespan.

b. Rate Stability: Fixed rate mortgages shield borrowers from sudden increases in interest rates, providing financial stability and peace of mind.

DISADVANTAGES:

a. Higher Initial Rates: Compared to variable rate mortgages, fixed rate mortgages often start with higher monthly payments initially (this has not been the case as of late, as variable rates have sharply increased with the Bank of Canada’s increases)

b. Missed Savings Opportunities: If market rates decrease significantly after obtaining a fixed rate mortgage, borrowers will not be able to take advantage of the lower rates unless they refinance the loan.

1. CHOOSING THE RIGHT OPTION

The decision between a variable and fixed rate mortgage ultimately depends on your unique financial situation, risk tolerance and long-term goals. Consider the following factors when making your choice:

a. Financial Stability: If you prefer a predictable budget and want to safeguard against potential interest rate hikes, a fixed rate mortgage may be the better option.

b. Short-term vs. Long-term: If you plan to sell your home or refinance within a few years, a variable rate mortgage could be beneficial due to (potentially) lower initial rates.

c. Risk Tolerance: Assess your comfort level with fluctuations in monthly payments and your ability to absorb potential rate increases.

CONCLUSION

Both variable rate and fixed rate mortgages offer distinct advantages and drawbacks for homebuyers in Ontario. The decision between the two comes down to individual circumstances and preferences. A variable rate mortgage can provide initial cost savings and potential benefits from rate decreases, but it comes with the risk of rate volatility. On the other hand, a fixed rate mortgage offers stability and predictability, but it may not capitalize on potential interest rate decreases.

It is essential to carefully weigh the pros and cons and consult with a qualified mortgage professional to make an informed choice that aligns with your financial goals and priorities. Ultimately, the right mortgage option will put you on the path to successful homeownership and financial security.