[Dawson]

My sister and fiancée are not as well off as I have been fortunate to be financially.

They have spent the last 3 years renting a home that was sub-par and finally got the motivation to move. Unfortunately they were not sound enough financially to be owning a home (and made the smart decision not to try).

I purchased a rental home and have been renting to them for a short period of time. Recently her fiancée had his mother pass away which was very unfortunate. As an outcome however he has come into some money.

As such, they are now interested in owning their own home, and really like the home I purchased for them to rent.

My question or interest in feedback from the group is the following:

I have no experience "breaking" a mortgage because any property I have purchased to date I purchase to keep (this one being my 4th). What options do I/We have and what costs could potentially be avoided if I chose to do this for them?

It is currently a 5 year fixed mortage with TD at 2.9%. (25 yr), only 6 months into the 5 year term.

Any help/guidance/suggestions would be very much appreciated.

Thanks!
Dawson

 

[Spudd]

Call the bank and ask. For my mortgage, they told me I'd need to pay 3 months interest to break it, but every mortgage is different. If it's too expensive to break it, they could take over the mortgage payments (I guess you'd basically just be giving them a break on the rent) and leave you as the owner for the time being, and then when the term is up, you'd break it and sell it to them at that point in time for whatever today's fair market value is, minus the principle that got deducted from the mortgage while they were paying it.

 

[the-royal-mail]

If they want it (and it's great that they do) then you should have a frank discussion with them as to all the costs involved. They should pay the fee to break the mortgage as well as the land transfer and other numerous taxes and fees payable. I think once you present them with those costs they'll have a decision to make. It will obviously depend on if it's a good deal for them or not but keep in mind it's not as easy as them simply taking over the mortgage from tomorrow. You also have some principle invested that should be coming back to you and sell it to them for fair market value. You'll need to give this a lot of careful thought. Let the numbers guide both sides here.

 

[Just a Guy]

You could also look at a "rent to own" option where they pay all the expenses until the mortgage comes up for renewal, and then look at selling.

 

[Dawson]

You could also look at a "rent to own" option where they pay all the expenses until the mortgage comes up for renewal, and then look at selling.

I have thought about this, and how to best structure it

 

[Cal]

The other option is to contact the bank, find out what the penalty is to break the mortgage, and consider that when discussing the final sale price. Also as it seems that you would be doing the deal through a lawyer only, no need for RE agent or fees, I am sure that when you consider reducing the sale price by the amount the RE agent would have taken in fees (as that will still give you the same amount of $ in your pocket) then adding the bank penalty for breaking the mortgage, the buyers will still get a slight 'deal' on the property.

 

[Dawson]

very good point you bring up, that does help them a little. I am 50/50 between both options (have them cover all costs to break and transfer vs a rent-to-own scenario).

on one hand it the breaking gets this overwith faster and makes sure i have my expenses covered, on the other hand the rent-to-own if structured properly is a good way to ensure they are learning the costs and responsibilities of owning a home before they get over their head (which i dont think they will but never can be too careful)

 

[Just a Guy]

If they have the money now, it's probably best to sell them the house outright for a price you both agree to. Money has a habit of disappearing over time...