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Selling home within a year - what to do at time of mortgage renewal?

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  • Nov 11th, 2013 3:26 pm
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[OP]
Sr. Member
Dec 19, 2010
523 posts
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Selling home within a year - what to do at time of mortgage renewal?

I've got a simple question which I suppose is fairly common but the first time being encountered by me.

The term on my current mortgage $400K is up for renewal in January. I expect to sell the home in summer 2014 and purchase another property with approx. a $150K mortgage. Can someone guide me as to whether I should get an open/closed, fixed/variable mortgage at time of renewal in January?

[INDENT]Option #1. Should I get an open mortgage with no term commitment at time of renewal in January if I know I'll be selling the home 6 months later?

Option #2. Or shall I get the BEST fixed or variable rate on a CLOSED term at time of renewal in January and then 6 months later sell the current home, buy the new home and "port over" the mortgage to fund the $150K mortgage at the new place? I'm nots sure if a lender will allow me to take over a mortgage of a lesser amount than I currently have on a closed term.
[/INDENT]

Is another option I take the best 1 year rate (perhaps variable or even 1-yr fixed), sell the home 6-8 months later and pay the penalty at that time for breaking the term? I'd imagine rates can only go higher so the penalty will be based on three months of interest vs. IRD which can be higher?

Thanks so much.
7 replies
Deal Addict
Nov 21, 2007
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Scarborough
callmebob wrote:
Nov 11th, 2013 8:40 am
I've got a simple question which I suppose is fairly common but the first time being encountered by me.

The term on my current mortgage $400K is up for renewal in January. I expect to sell the home in summer 2014 and purchase another property with approx. a $150K mortgage. Can someone guide me as to whether I should get an open/closed, fixed/variable mortgage at time of renewal in January?

[INDENT]Option #1. Should I get an open mortgage with no term commitment at time of renewal in January if I know I'll be selling the home 6 months later?

Option #2. Or shall I get the BEST fixed or variable rate on a CLOSED term at time of renewal in January and then 6 months later sell the current home, buy the new home and "port over" the mortgage to fund the $150K mortgage at the new place? I'm nots sure if a lender will allow me to take over a mortgage of a lesser amount than I currently have on a closed term.
[/INDENT]

Is another option (#3) I take the best 1 year rate (perhaps variable or even 1-yr fixed), sell the home 6-8 months later and pay the penalty at that time for breaking the term? I'd imagine rates can only go higher so the penalty will be based on three months of interest vs. IRD which can be higher?

Thanks so much.
Option #3: the savings in 6-8 mth is NOT enough to cover the penalty which is typically 3 mth interest on a one-year term.

Option #2: you will not be "porting" the same which means you will be hit with a penalty on the amount that you are NOT taking with you.

Option #1: your BEST choice. Try to have your lender give you as low an open rate as possible. BTW, the higher open rate for a few months is not a lot, dollar wise. Look at the big in-encumbered picture.
[OP]
Sr. Member
Dec 19, 2010
523 posts
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Samwfive wrote:
Nov 11th, 2013 9:11 am
Option #3: the savings in 6-8 mth is NOT enough to cover the penalty which is typically 3 mth interest on a one-year term.

Option #2: you will not be "porting" the same which means you will be hit with a penalty on the amount that you are NOT taking with you.

Option #1: your BEST choice. Try to have your lender give you as low an open rate as possible. BTW, the higher open rate for a few months is not a lot, dollar wise. Look at the big in-encumbered picture.
The open mortgage rates are around 6.7% (based on what is publicly posted). On a $400K mortgage, that's a payment of $2500/mo. A 1-r fixed rate mortgage at 2.7% gets me a payment of $1600/mo. A difference of approx. $900/mo.

Assuming I close the sale in September, I will have to pay $900 X 9 months (from time of renewal in Jan to September) in extra mortgage costs = $8100.
If I go with a 1-yr fixed term and pay 3 months of interest cost for breaking the mortgage, the cost will be approx. $900/month in interest costs X 3 months = $2700.

Isn't the 1-yr fixed with a penalty at month 9 for breaking the term a better option? What am I missing?
Deal Guru
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Oct 24, 2012
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callmebob wrote:
Nov 11th, 2013 11:06 am
The open mortgage rates are around 6.7% (based on what is publicly posted).
Who is your lender?
6.7% sounds like the open FIXED rate.
An open VARIABLE rate would get you P+1% (4%)
Deal Fanatic
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Jun 7, 2001
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alkizmo wrote:
Nov 11th, 2013 11:12 am
Who is your lender?
6.7% sounds like the open FIXED rate.
An open VARIABLE rate would get you P+1% (4%)
+1. Variable open should be 4% or less. I was in the same boat last year. My 5 year fixed mortgage was ending in October 2012 and I was planning to put the house on the market at the end of October/early Nov. Paid the $500 fee at TD when I had sold the house in Feb 2013. My other option was to go with 1 year fixed closed.

Dave
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Jul 7, 2003
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DavidY wrote:
Nov 11th, 2013 11:34 am
+1. Variable open should be 4% or less. I was in the same boat last year. My 5 year fixed mortgage was ending in October 2012 and I was planning to put the house on the market at the end of October/early Nov. Paid the $500 fee at TD when I had sold the house in Feb 2013. My other option was to go with 1 year fixed closed.
+2. GF is in a similar situation as OP. She just signed a renewal with RBC at 4% open variable while we are searching for a house together.
[OP]
Sr. Member
Dec 19, 2010
523 posts
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DavidY wrote:
Nov 11th, 2013 11:34 am
+1. Variable open should be 4% or less. I was in the same boat last year. My 5 year fixed mortgage was ending in October 2012 and I was planning to put the house on the market at the end of October/early Nov. Paid the $500 fee at TD when I had sold the house in Feb 2013. My other option was to go with 1 year fixed closed.

Dave
Are you suggesting the difference in interest between your fixed rate and the open variable rate you got over the Oct-Feb timeframe was $500?

I'm with national bank and will enquire about their open variable rate. With that said, am I right in my assessment that I should go with the open rate only if it costs me less over the 9 months to pay the additional interest (due to the higher rate) vs the 3 month interest penalty on the 1 year fixed rate? If not, I should go with the 1 year fixed rate and simply pay the penalty of 3 months interest at approx. 2.7%?
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callmebob wrote:
Nov 11th, 2013 3:11 pm
Are you suggesting the difference in interest between your fixed rate and the open variable rate you got over the Oct-Feb timeframe was $500?

I'm with national bank and will enquire about their open variable rate. With that said, am I right in my assessment that I should go with the open rate only if it costs me less over the 9 months to pay the additional interest (due to the higher rate) vs the 3 month interest penalty on the 1 year fixed rate? If not, I should go with the 1 year fixed rate and simply pay the penalty of 3 months interest at approx. 2.7%?
$500 is the fee that TD charges when one terminates an open variable mortgage (effective last year). I don't remember that the rate exactly...around 3.8% I think.

You need to check with National on their fee for closing/termination on an open variable. With your National rep, do a cost comparison between the two options and determine the time frame when it is more cost effective on one option than the other.

Dave

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