Mortgage porting (also known as transferring your mortgage) has been growing in popularity in Canada.
“Porting a mortgage allows you to transfer your existing mortgage to a new property when selling your current home and purchasing another,” explains Alex Lavender, an Accredited Mortgage Professional (AMP) with the Clinton Wilkins Mortgage Team in Halifax, and the best-selling author of Mortgages for Millennials. “This means you retain the same interest rate, amortization period, and remaining term, while simply changing the property that secures the loan.”
According to Wendy Krukin, mortgage agent with Today’s Mortgage Choice in Toronto, most homeowners who port their mortgages do so either to avoid the prepayment penalties that come with breaking a mortgage before its maturity date, or because their existing interest rate is lower than the current rates.
“Porting can be a great option if you want to move, but keep your rate, especially if current interest rates are higher,” she notes. “Porting also lets you avoid penalties for breaking your mortgage contract early.”
How does mortgage porting work?
First, talk to your lender or mortgage broker to find out if your mortgage is portable.
If your mortgage is portable, you can use a porting mortgage calculator to see if porting makes financial sense for you depending on how much you still owe, and whether your existing rate is lower than current rates. If it works for you, make a request to your lender.
Because the ported mortgage is essentially a new contract, your lender will likely need to reassess your income and credit, appraise the value of the home you want to buy, and re-qualify you all over again.
“If approved, the existing mortgage is transferred to the new property, avoiding the need to break the mortgage,” Lavender says.
Can all mortgages be ported?
In most cases, you have to follow certain rules if you want to port your mortgage. For example, most lenders won’t let you port a restricted or variable-rate mortgage. So if you want to port a variable-rate mortgage, you’ll usually have to convert it to a fixed-rate mortgage first.
Because you’re transferring your mortgage from one property to another, you can only port if you buy a new home within 30 to 120 days after selling your current property — depending on your lender. Plus, while many lenders allow mortgage porting, not all do. So if you’re thinking about porting your mortgage, talk to your lender, broker, or REALTOR® for advice.
What is porting vs. breaking a mortgage?
When you port, you move your existing mortgage to your new property. Breaking a mortgage means completely ending your current mortgage contract early.
If you break your mortgage, you’ll be free to choose any lender and mortgage product you want for your new home, but you’ll have to pay the penalty for canceling early and get re-qualified.
If you port your mortgage, on the other hand, you can keep your current interest rate, term, and other features of your existing mortgage, but you must keep your current lender, and adhere to their policies.
“When you port a mortgage, you avoid paying the penalty for breaking your mortgage, but you have to stay with your current lender,” Krukin explains. “When breaking a mortgage, you have to pay the prepayment penalty, but you can opt for current rates, a different term or amortization, and different lenders or products, so there’s more choice.”
What are the pros and cons of porting?
There are several pros and cons to porting. The benefits of mortgage porting are that it might let you:
• save money by keeping your current interest rate;
• avoid the prepayment penalties; and
• extend favourable terms from an existing mortgage.
The drawbacks, on the other hand, can include:
• limited flexibility on the types, term and amount of mortgages that qualify for porting;
• having to buy and sell quickly to fit within the 30- to 120-day porting window; and
• not being able to explore different rates, products and offers from competing lenders.
Everyone’s situation is different, but keep in mind:
• Breaking a mortgage could impact your credit rating, but mortgage porting usually has no effect on it.
• Some lenders have restrictions for porting a mortgage from one province to another, so check first.
• Along with your monthly payments, you’ll still need
to come up with a down payment. If you need bridge financing to cover the down payment until your current home sells, talk to your lender as soon as possible.
Can you port to a higher-value property?
If you want to port a mortgage to a cheaper home, you usually only have to pay a prepayment penalty on the portion of the loan you don’t need to take with you. But if you’re buying a more expensive house, things can get a little more complicated.
Generally speaking, you can’t port more than the total amount of your current mortgage. So if you want to port a mortgage to a higher-value property than your current home, any new funds you need to borrow will likely be financed at the current rate of interest.
Luckily, most lenders will let you “blend and extend” your mortgage to take your existing loan with you, but top it off with additional financing at the current rate. For example, let’s say today’s interest rates are at 5%. You have $500,000 outstanding on your current mortgage at 3%, and you want to sell your home and buy a new home with a $600,000 mortgage.
If you break your mortgage, you’ll have to pay a prepayment penalty on the full $500,000, and negotiate a new mortgage for $600,000 at 5%. But if you port your existing $500,000 loan over to your new home at 3%, and then blend it with a top-up of another $100,000 at the current rate of 5%, you could end up saving a significant amount on your monthly payments.
When does porting a mortgage make sense?
For most homeowners, the question of whether to port or not boils down to the numbers.
“Porting is usually beneficial when your current rate is lower than market rates,” Lavender notes. “But if current interest rates are significantly lower than your existing rate, it may be worth evaluating whether breaking would result in greater long-term savings.”
With so many different factors at play, crunching the numbers can be tricky. So don’t hesitate to ask your mortgage broker or lender to help you do the math.
As Krukin notes: “Working with a mortgage professional is critical, because they can run the numbers and determine if it would be more favourable to port your mortgage or break your contract and get a new one, which can save you thousands of dollars.”
Who should you call if you want to port?
You can only apply to port your mortgage once the offer on your new home is accepted, and you have a firm sale on your existing property. So, for most homeowners, it’s a good idea to reach out to your lender or broker no later than four weeks before your closing date, or as soon as you have a signed purchase agreement, to get the ball rolling.
Of course, anytime you need advice about any aspect of buying, selling or financing a home, you can also ask your REALTOR®! In addition to answering your questions, your REALTOR® can connect you to their network of qualified professionals, and help you get the expert advice you need.
— REALTOR.ca