GET YOUR FINANCES IN ORDER

Get Your Finances in Order

Before you start the process of selling your home, you should prepare yourself for the large sums of money that will exchange hands during this transaction.

If you still are a ways off from paying off your mortgage, there are a few things that you should consider:

“Discharging” your mortgage

To discharge a mortgage, a person uses the proceeds of their home’s sale to pay off their existing mortgage. If you have what is called an “open” mortgage on your home, you can pay it off without any stiff penalties. If you are currently on a closed mortgage, you will have to pay a penalty. The amount of this penalty will depend on factors such as how much time is left remaining on the term of the mortgage.

Portable mortgages for buying a new home

When you take your mortgage money and buy a new home without a penalty, this is called a “portable” mortgage. This can be incredibly useful for individuals whose interest rate on their mortgage is lower than existing market rates. If the home you’re buying is more expensive and requires more money, you will likely have to borrow the money at the current market rate.

Could the buyer “take over” your mortgage?

Some mortgages have a feature that lets the new buyer take over the mortgage of your home. If the interest rate is lower than current market rates, this can really draw in potential buyers.

Vendor take-back mortgages

When you lend directly to the buyer, this is referred to as a “vendor take back” mortgage. This is used often to assist sellers in moving their property during slower market times. This exchange is incredibly complicated and will require conversations with your realtor, financial advisor, and your real estate lawyer.

Capital gains tax

If the home that you’re selling was your primary residence, you won’t be made to pay any capital gain taxes. This kind of taxation relates to your home’s increase in value. If you have had tenants living in the part of your home, such as in the case of renting out your basement, you will have to pay a capital gains tax on a portion of the profits that you have made. In the event of selling a vacation or investment property, you may also have to pay a capital gains tax.

Your lawyer and realtor provide services that are subject to GST/HST.