Podcast Episode 25: “When Is Your Portable Mortgage Not Portable?”
This Tale explains some of the pitfalls of relying on the portability clause in your old mortgage to buy a new house. It also talks about why your credit track record doesn’t trump bank policy. Consider making your sale subject to achieving an unconditional purchase.
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My client was buying a new personal residence. The four kids were now all out on their own. He had been made redundant with a reasonable severance package from his employer and he was eligible for substantial employment insurance (EI). He put his current house on the market and got a pretty quick, acceptable offer from a family with guess what, four kids.
The new buyer removed their conditions. Very pleased with his good fortune my client started looking for a new, much smaller home for himself and his wife. He checked his file and noted that he had a ‘portable’ mortgage from one of the big five lenders. In his mind, that meant that he could easily buy a new home quickly and without argument, he could ‘port’ his mortgage right over from the old home to the new home. In his mind, he wouldn’t need a new mortgage at all and that would mean substantially reduced legal costs if a new mortgage did not have to be prepared.
He found the right new home and went to his bank to advise them of his plans. They told him there would be a little bit of paperwork to go through. Long story short, a little bit of paperwork was a brand-new application for a mortgage. Because he had lost his job and was relying on EI and a small pension, he did not meet the lender’s income requirements. EI is temporary and not counted as part of regular income. It didn’t count that he had a gold-plated credit rating and had purchased two other personal residences with the same lender. It also didn’t count that he had loan to value ratio of 65% and therefore lots of equity in the new home. He just didn’t have the income.
He also wasn’t too happy to hear from me that a portable mortgage generally means that if the bank approves what is essentially a new mortgage application, you only get to take the same terms of your old mortgage over to the new property. However, you need brand-new paperwork with the usual legal fee attached. My client was outraged and called the highest levels of the lender to complain. In the end, the lender decided to relax their policies and approved his new loan.
Lessons Learned:
- A mortgage is a contract. Portable just means you can get a new mortgage with the same terms as your old one. You have to read your contract.
- Don’t rely on your outrage and previous good history to make a lender change their mind. My client was lucky.
- When selling one personal residence and buying another you might want to make your sale subject to your ability to purchase the new home, which is subject to financing.
Contact Barry now about porting your mortgage in Alberta.
“Mortgage earnings” image used under CC0 Public Domain.