Expert: Cinzia Dalgarno - 2/21/2010

Question
Hello:

I am impressed with your responses to other writers, so was hoping to get your feedback on this question. I am trying very hard to get out of an unhappy marriage, and we have agreed to sell the house and go our separate ways. Our house has a mortgage of 334,000 and the realtor told us today that we'd be luck to get between 350-360k for it. This means that I would have maybe a downpayment of $7500 (once our money was split) so I'm worried about finding another place. Our early payout penalty would be 29,000 as we're only 1.5 years into our 5 year fixed. I'm wondering if it's at all possible to port the mortgage to avoid the payout penalty, then buy a new place with no money down??? I know that some places take no money down - but I'd have to pay that penalty to go to a different bank and start over. I bank with CIBC.  I also can't figure out why we have such a high penalty as we had CMHC insurance on there, which I thought indicated that our payout penalty would be 3 months interest.

Any clarification (and hope!) would be appreciated!

Lisa

Answer
Hello Lisa. It would be a good idea to port your existing mortgage to your new home. However, unless the new home is going to cost the same or more than your existing home, you will not be able to port the entire mortgage amount. Thus, there will, at the end of the day, be a portion that will be paid out - and that portion will have a penalty applied. Before you payout the remaining portion, ask the lender to calculate the payout penalty using the remaining balance less 20% (or whatever the maximum annual prepayment percentage is), which will further reduce the payout. They should be willing to do this if you're porting your mortgage.
Getting a 100% mortgage (commonly known as 5% cashback these days as it's pretty much the only viable option left for 100% financing), is expensive and I strongly don't recommend it. Firstline, CIBC's mortgage company susidiary, does have a 3% cashback - so I assume CIBC also has it, and perhaps even the 5% cashback.
However, if there is any way you could borrow or somehow scrape up the downpayment do so - you will (assuming your application is strong enough) only need 5% of the purchase price. The interest rate will be much cheaper.
If you plan on getting the cashback, you will need to choose another 5yr term; so instead of simply porting the existing terms of your mortgage over, you will need to port and extend - the bank will do the calculation to blend the rate you have with the current rate for a 5 yr term, and will basically early renew your mortgage.

I would like to suggest at this point that you contact a mortgage broker; the money situation seems very tight, and it would be a good idea for you to have someone that you give all the specific details to, so that they can get a true picture of where you stand. This is really the only realistic way of determining how to proceed.

I would suggest you make a list of all your assets (including vehicles, real estate, liquid assets:rrsp's,gic's,term deposits, etc) and all your liabilities (include all debts - credit cards, loans, mortgage, etc). Have a current mortgage stmt handy, your property assessment, the realtor's letter of opinion (this is where they tell you what they think your house is worth), current paystub for you, 2009 T4 (if you are not salaried, then have 2 yrs t4's or Notice Of Assessments).
The mortgage broker will put it all together, and will ensure you account for realtor's fees, legal fees, etc... and will be able to give you some options as to what you can do.

One final thought: if you include the penalty for paying out the mortgage, on the outstanding balance, you come out needing to pay the bank out of your own money (you and your husband, that is).
$334,000 approximate value
$ 15,000 approximate realtor fees (you should find out what these will be)
$ 29,000 mortgage payout penalty
$378,000 total payout
$355,000 approximate value
$ 23,000 outstanding (you and hubby have to pay)

Would your husband be willing to pay you 1/2 of the $23,000 and walk away from the house? Without selling it, knowing that if you did sell it, he'd be on the hook for that money.
If so, would you be able to carry the mortgage as it is right now? Keep the $11,500 he gives you as a buffer for the tough times ahead.

Hope this was helpful to you, and I hope that all works out for you,

Warm regards,
Cinzia
Mortgage Advisor
Spectrum Canada
mortgagebycinzia@gmail.com