When you make the decision to move to a new home, you might be worried about the status of your existing mortgage. The viable option of “porting” your mortgage—moving to a new home and bringing your present mortgage terms and interest rates with you—is possible. Let’s check the pros, cons, and steps of moving a mortgage to Canada.
What is Porting a Mortgage?
Applying your present mortgage to a new home, including its terms and interest rate, is known as porting a mortgage. Only if you are buying a new property and selling your old one at the same time is this procedure possible. By not breaking your current mortgage, transferring a mortgage avoids pre-payment penalties, unlike refinancing.
Example:
Assume you have a $300,000 mortgage amount with three years left on a five-year term and a 2.5% interest rate. You purchase a new house for $500,000 after selling your old one. By transferring your mortgage, you keep the 2.5% interest rate on the $300,000 and may require a new rate for any further borrowing needed to pay for the expenses of the new house.
When to Port a Mortgage?
Generally, there are 2 main reasons for considering the porting option. When your current mortgage rate is less than what lenders are now offering, it makes the most sense to port your mortgage. Because of this, your interest rate will remain lower, saving you money.
Despite possible penalties for breaking your mortgage, refinancing can be more advantageous if current mortgage rates are lower than your current rate. Mortgage rates have increased dramatically as of 2022 and 2023, so it’s less likely that you’ll discover rates that are lower than what you could presently have.
So, the main two reasons for porting are:
- To avoid incurring penalties for terminating your current mortgage
- and also to carry on benefiting from a competitive fixed rate.
Do All Mortgages Allow Porting?
You may relocate your mortgage thanks to the portability option found in the majority of fixed-rate mortgages. Not all lenders offer these options. It’s important for clients to confirm with a Mortgage Broker. Some lenders do, however, provide limited mortgages that prohibit porting. Furthermore, transferred variable-rate mortgages are usually not available. Before porting, you might have to go to a fixed-rate mortgage.
How to Port Your Mortgage?
Porting to a Higher Value Property
Upsizing to a more costly property may require you to increase your mortgage amount unless you have the cash on hand to cover the difference. In this case, a “blend and extend” mortgage is chosen by many borrowers.
A blended and extended mortgage combines the current rate that you currently have with the rate that the lender is now offering. For example, if the lender’s rate is 5% and your existing rate is 2%, the blended rate for a new five-year term may be around 3.5%.
To upsize, the lender will requalify you for the new mortgage amount, assessing:
- Home value appraisal
- Credit score
- Debt service ratios
- Income and other documents
If you meet the criteria, you can finalize the porting process by signing the necessary documents.
Porting to a Lower Value Property
If you try to use the money from the sale of your more costly property to pay off a sizable chunk of your mortgage while you are downsizing, you may be subject to prepayment penalties. Prepayment options vary from lender to lender, and it’s important to confirm with a Mortgage Broker. Consider utilizing the leftover earnings for future payments or prepayments up to the permitted limitations, and use a lesser down payment on the new house to avoid fines.
Consider utilizing the leftover earnings for future payments or prepayments up to the permitted limitations, and use a lesser down payment on the new house to avoid fines.
Key Considerations Before Porting a Mortgage
Before deciding to port your mortgage, keep the following factors in mind:
- Mortgage Porting Clause: Verify that your mortgage agreement includes a porting clause. This is usually applicable to fixed-rate mortgages. Check with your lender if you’re unsure.
- Porting Time Limit: Most lenders allow a 30-120-day window for porting. Ensure your timeline for buying a new home and selling the old one fits within this period.
- Mortgage Qualification: Lenders will typically requalify you when porting, especially if you’re upsizing. This process involves a reassessment of your financial situation, similar to your initial mortgage qualification.
- Downpayment: Ensure you have the minimum down payment for the new home. If you plan to purchase before selling your old home, you might need bridge financing.
- Mortgage Life Insurance: Clients who have creditor insurance through Mortgage Alliance can port their mortgage insurance from property to property and lender to lender. This is a benefit clients receive when working with me, Sandra Brown. If the client purchased the creditor insurance directly with the lender, it is not portable to a different lender. However, they need to requalify for any increase in insurance coverage. For example, if their mortgage balance is $250,000 and the house they are buying is $500,000, they can port the creditor insurance coverage at the current rate of $250,000 and reapply for additional coverage of $250,000. This would be considered two separate policies and payments.
Transferring your mortgage to a new house at a lower cost without sacrificing advantageous conditions is possible if you port your mortgage. You may make decisions that are in line with your financial objectives by being aware of the process and taking important considerations into account. To discuss your alternatives and make sure the transfer to your new house goes well, always get in touch with your lender.
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