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Discharging Your Existing Mortgage

Many people, when selling their home, use the proceeds from the sale to "discharge" or pay off their mortgage loan. If you have a fully "open" mortgage, you can discharge it at any time without penalty. However, if yours is a fully "closed" mortgage, discharging it may require you to pay substantial penalties, often in an amount equal to several months’ interest payments.

There are ways to avoid these penalties, such as taking a "portable" mortgage with you when you sell your present home and applying it to the home you buy. Depending on your specific sales objectives, you may be able to time the sale's completion to coincide with the end of the mortgage term.

Mortgage "Portability"

A portable mortgage allows you to take your mortgage with you (without penalty) if you sell your present home and buy another one. This can be very beneficial, particularly if the interest rate on your mortgage is lower than the market rates at the time of your move. If your new home requires a larger mortgage amount, the additional funds required can usually be furrowed at the current market rate.

Portability can also enable you to avoid substantial penalties in discharging a closed mortgage when you sell your home.

Bridge Financing

If you are planning to buy your next home before the sale of your current home is complete, you may want to consider "bridge financing" Broadly speaking, bridge financing enables you to borrow an amount equal to (or less than) the net proceeds you are expecting to realize on your sale - and to use these borrowed funds to purchase your next home. When the sale on your current home closes, you use the proceeds to pay off the short-term bridge loan plus interest.

Tax Implications of Selling Your Home

Under most circumstances, you will not have to pay tax on any capital gain (the increase of your home’s value) when you sell your primary residence.

Estimating the Proceeds from the Sale of your Home

Use this handy worksheet to help you estimate the proceeds that you will have remaining after the sale of your home.

Sale Price $ __________________
Refund of pre-paid costs:
  Utilities $ __________________    
  Heating oil/propane $ __________________  
  Homeowner's insurance $ __________________  
  Real estate taxes $ __________________  
  Condominium maintenance fees $ __________________  
  Municipal assessments $ __________________  
Other Income $ __________________  
Total Income $ __________________ A
Balance of mortgage loan $ __________________  
Interest on mortgage since last payment $ __________________  
Mortgage prepayment penalty $ __________________  
Other lender fees $ __________________  
Real estate tax pro-ration $ __________________  
Real estate commission $ __________________  
Legal fees $ __________________  
GST on professional fees $ __________________  
Other payments $ __________________  
Total Payments $ __________________ B
Net Proceeds from Sale $ __________________ A-B