What is Porting a Mortgage?
What You Should Know
- Porting or transferring a mortgage allows you to transfer your current mortgage to a new home without breaking the mortgage contract.
- You can avoid mortgage-breaking penalties by porting a mortgage.
- Lenders usually allow a time frame of 30 to 120 days for porting a mortgage.
- Porting is best if your current rate is lower than the ongoing mortgage rates in the market.
Porting a mortgage allows you to keep the same mortgage terms with your existing lender when you sell your current home and buy a new one in the middle of a mortgage term. The process is also known as transferring a mortgage, as it allows you to transfer your mortgage to a new home without breaking the contract and potentially paying heavy prepayment penalties.
When to port a mortgage?
Porting a mortgage can be beneficial if your mortgage rate is lower than the current market rates. Porting allows you to keep the lower interest rate instead of switching to a higher-interest-rate mortgage in such a situation.
However, if the current mortgage rates in the market are lower than your existing mortgage rate, porting may not be the best option. If you can refinance your mortgage at a lower rate, you could reduce your monthly payments and reduce your interest cost. Your decision will also depend on the mortgage prepayment penalty for breaking your mortgage contract. The best option will always be the one that saves you money. You can talk to your mortgage lender or a mortgage broker to help you make the calculations and come up with the best solution for your unique situation.
Do all mortgages allow porting?
Many lenders enable porting fixed-rate mortgages and automatically include portability in your mortgage agreement. However, there are some lenders that don’t allow mortgage porting. Mortgages that cannot be ported are often called restricted mortgages. Meanwhile, variable-rate mortgages typically can’t be ported, and you will have to switch to a fixed-rate mortgage before porting the mortgage.
How to Port your Mortgage
While porting a mortgage may seem like a great idea, you need to be eligible for porting. You should talk to your mortgage lender if you are considering porting your mortgage, as they can tell you what the process looks like. Most often, your new home will have a different value than your current one, which would affect the mortgage. Read below to find out how you can port your current mortgage to a home with a higher or a lower value.
Porting a Mortgage to a Higher Value Property
In most cases, if you're upsizing your home in the same city, the new home will have a higher value than your current home. In this situation, you will likely need to increase your mortgage amount unless you are able to pay the difference upfront. Most borrowers opt for a ‘blend and extend mortgage’ in such a situation.
Blend and extend mortgages allow you to borrow more money and also extend the mortgage term, typically to a new 5-year term. A blended mortgage blends your existing mortgage rates with the current mortgage rate being offered by the lender. For example, if your existing mortgage rate is 2% and the lender is currently offering a rate of 5% for a 5-year term, then the blended mortgage will have an interest rate between 2% and 5%, such as 3.5%, for a new 5-year term.
When you are upsizing your mortgage, the lender typically requalifies you for a new, larger mortgage. The lender would follow the standard steps for mortgage qualification, such as:
- Appraising the Home Value
- Checking your Credit Score
- Evaluating Your Debt Service Ratios
- Assessing your Identity, Income and Other Documents
You can port your mortgage easily if you qualify based on the lender’s criteria. Signing all the required documents will finalize the process, and you'll be all set!
Porting a Mortgage to a Lower Value Property
Another scenario is selling your home to move into a less expensive home. While selling a more expensive home and moving to a less expensive one might seem like you are making a profit, there is a catch. Typically, you will use the profit to repay a portion of your mortgage debt. However, most lenders will only allow you to pre-pay up to 20% of the principal mortgage balance each year without any prepayment penalty. This means if you make a profit of more than 20% of the mortgage's principal balance and use all of it to pay down your mortgage, you may face prepayment penalties, costing you thousands of dollars.
You can avoid this penalty by reducing the downpayment on the new house and prepaying less of the mortgage balance. This means if you’re making a profit more than the prepayment limit, don’t use all of it immediately to prepay the mortgage. Instead, you can make a smaller down payment and use the rest of the profit for future mortgage payments or prepayments in the following years. This will greatly depend on what your mortgage contract allows you to do.
Key Considerations Before Porting a Mortgage
Before you decide to port a mortgage, there are a few other key considerations.
- Mortgage Porting Clause:
You first need to consider whether your mortgage agreement allows porting. While most lenders allow you to port a fixed-rate mortgage, you would typically be unable to port a variable-rate mortgage. You can refer to your mortgage agreement or check with your lender to ensure your mortgage can be ported. If you are a first-time home buyer and don't already have a mortgage, make sure your contract includes a portability feature.
- Porting Time Limit:
Most lenders allow a window of 30 - 120 days for porting. This means you will have to buy the new home and sell the old one within this timeframe. Ensure you are comfortable with the permissible time limit before moving forward.
- Mortgage Qualification:
Most lenders would want to requalify you when porting, especially if you are upsizing. They will carry out the same qualification process as they did for your first mortgage, and you will have to qualify to be able to port the mortgage.
- Downpayment:
You will also need to have at least the minimum down payment for the new home. This will especially be a consideration if you plan to buy a new home before selling the old one, as you won’t have the proceeds from the sale to put down as a downpayment. You may also check if your lender offers bridge financing for porting a mortgage.
- Mortgage Life Insurance:
If you currently have mortgage life insurance, it's important to know that it doesn't transfer to your new property. This means you'll have to reapply for coverage with your lender if you want to keep it.
Pros and Cons of Porting a Mortgage
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Alternatives to Porting a Mortgage
You will still have other options if you can't port your mortgage.
- Break your current mortgage, pay prepayment penalties and get a new mortgage. If you break your mortgage early, you will have to pay penalties, which could be significant. However, you may be able to get a lower interest rate from a different lender than what your lender is offering you for blend and extend, which may save you more money over time.
- Wait for your mortgage term to end, then move. In doing so, you will be able to avoid prepayment penalties, and you could get a new mortgage altogether.
- Sign your existing mortgage over to the buyer if the lender allows the buyer to assume the mortgage.
FAQ
Porting a mortgage means transferring your current mortgage to a new home when you sell your current home in the middle of a mortgage term and buy a new one. By porting a mortgage, you can keep the terms of your mortgage as they are, including the interest rate. You can also avoid paying prepayment penalties for breaking a mortgage contract.
Yes. Most lenders will allow you to borrow more when you port a mortgage. However, there are certain conditions. Firstly, you must qualify for the larger mortgage amount. The lender will requalify you to ensure you can afford the larger mortgage. Secondly, the interest rate won’t remain the same. The lender would typically blend your existing mortgage rate with the current rate offered by the lender, and your new mortgage will be a blended mortgage. For example, if your existing rate is 3% and the best rate the lender is now offering is 5%, you can expect your new mortgage rate to be somewhere in between 3% and 5%.
Yes. As long as your lender operates in the province, you should be able to port the mortgage to another province. However, some lenders may not allow porting your mortgage to another province.
Lenders would typically requalify you when you upsize your mortgage. This is because the financial checks conducted during the qualification process will tell the lender whether you can afford the larger mortgage amount. If you are downsizing, the lender may be willing to let you port your mortgage without going through the qualification process again.
Yes. Just like a regular purchase, you must pay a downpayment for your new home. If you sell the current home first, you can use the proceeds from the sale for the downpayment of the new home. If you’re planning to buy a new home before selling the old one and don’t have enough saved for a downpayment, you could ask your lender if they provide bridge financing.
The Bottom Line
Porting your mortgage is a great way to save money and simplify the home-buying process. Always try to negotiate a mortgage contract with a portability feature; this allows you to save fees and time if you ever want to move in the future. By understanding how porting works and what to consider, you can make the best decision for yourself and your family.