Porting Your Mortgage
If a mortgage is portable, certain terms of the mortgage (usually at least the interest rate and the remaining term) may be transferred to the borrower's new property if the borrower sells the original mortgaged property.
You packed your dishes, furniture and the rest of your belongings, but what about “packing up” your mortgage and moving it to your new home? If you're moving, taking your existing mortgage to your new home can often save you money on interest and other charges.
Most lenders offer the flexibility to box up your fixed-rate mortgage and move it to another property. This is known as porting your mortgage. When you port a mortgage, you continue the same interest rate, term and maturity date on the outstanding mortgage balance. The lender allows you three months to transfer your mortgage to the new house after selling your existing home.
If you have an amazingly low-interest rate on your current mortgage and rates are higher now, porting will be beneficial. When you port the mortgage, you will continue to pay the same low rate. This will save you money during the remainder of the mortgage term.
You avoid paying a prepayment charge when you port because you are not breaking your mortgage contract. You will have one of two prepayment charges when you pay off your existing mortgage. The prepayment charge will be the greater of three months' interest or an interest rate differential calculation. This is the interest cost to the lender for the remainder of your mortgage term. When your existing mortgage is transferred to the new property, the lender will reimburse you the penalty cost. These savings can be significant depending on how much time is left on your term.
If you downsize your home and plan to have a smaller mortgage, you can take a portion of the mortgage with you. You would be expected to pay a prepayment charge on the balance that is paid off early.
When homeowners are ready to move up and purchase a more expensive home, they may require a larger mortgage. This is not a problem with most lenders when you port your mortgage. Lenders will blend the existing mortgage with current rates and add the necessary funds. You will be given the option to choose a longer term as well. This is known as a blend and extend mortgage.
The new property will have to meet the lender's guidelines, and usually, the lender will also require that the borrower reapply or requalify for the mortgage financing. The original mortgage will be discharged from title when the original property is sold, and a new mortgage will be registered on the borrower's new property when it's purchased.
Let's Summarize the Types of Ports
- When the amount of the mortgage on the new property is the same as the balance of the mortgage outstanding on the original property, this is referred to as a straight port.
- When the amount of the mortgage on the new property is higher than the balance of the mortgage outstanding on the original property, this is referred to as a port and increase.
- When the amount of the mortgage on the new property is lower than the balance of the mortgage outstanding on the original property, this is referred to as a port and decrease.
Remember that even though your mortgage may come with a portability option, it is not always beneficial to use. The best way to ensure you pack up a mortgage you want to keep is to talk with a local mortgage broker about your scenario. I can do all of the heavy lifting by presenting you with some calculations. These calculations compare the cost of taking out a new mortgage and paying your penalty vs. the cost of porting your mortgage and avoiding the penalty.
Let's chat to determine if porting your mortgage is the right option. Moving can be a stressful time in your life. Let me do all of the heavy lifting when it comes to moving your mortgage!
*May not be offered through all lenders. Details will vary between lenders.