What is Porting a Mortgage?
Porting a mortgage means transferring your existing mortgage from one home to another, with the current rate and terms intact.
Simultaneously moving to a new home while selling your old one can be cumbersome, time-consuming, and costly.
This is especially true if you pay out your current mortgage and start over with a fresh contract – you could end up with a higher interest rate and unfavourable terms.
In addition, you’ll also have to contend with a potentially steep prepayment penalty.
If you already possess a mortgage contract with a low rate and terms you’d like to retain, porting can prove to be both a convenient and financially wise move.
Can I Port My Mortgage?
Before contacting your mortgage representative to kickstart the porting process, you must verify if doing so is possible.
Mortgage contracts contain a variety of features.
Depending on your contract’s terms and conditions, your lender might prohibit porting of any kind.
As a result, you’ll have no choice but to break your contract, thus triggering a prepayment penalty.
Even if your contract allows porting, you could still be subject to restrictions if your new property doesn’t meet your lender’s eligibility criteria.
For example, they might approve the transfer only if your new property is in a specific geographical location, such as within the province.
Or they might disqualify the transfer based on the type of property you intend to purchase if they’ve identified certain risks associated with it.
Assuming you’ve met your lender’s criteria, porting your mortgage is relatively straightforward regarding administration.
Your lender will ask you to provide applicable details and supply the necessary documents to process your application.
Fact
Typically, fixed-rate mortgages are portable, while variable-rate mortgages are not.
When Should I Consider Porting My Mortgage?
Beyond the qualification criteria and administrative steps, it’s vital to assess whether porting your mortgage is economically feasible, given your circumstances.
In general, you should port your mortgage if:
- Your prepayment penalty is excessively high
- Your existing interest rate is lower than the rate your lender offers to new borrowers for a comparable mortgage
- You have several years remaining in your term
Your present situation doesn’t necessarily have to satisfy all three criteria to justify porting.
If you come out ahead financially by doing so when compared to breaking your mortgage contract, it’s worth pursuing.
Here’s a mortgage porting example that ties in the above concepts:
Assume you finalize the sale of your existing home for $650,000 and are looking to transfer your fixed-rate mortgage to a new home valued at $875,000.
You plan to use the equity in your old home to put toward the down payment for the new one.
Your mortgage balance owing is $400,000 with three years left in your term, and your contracted rate is 4.90%.
Currently, your lender offers borrowers a rate of 5.60%.
Also, you estimate your prepayment penalty to be $7,500 if you opt to refinance instead.
Your total new mortgage would be calculated as follows:
- $650,000 – $400,000 = $250,000 equity available as down payment for new home
- $875,000 – $250,000 = $625,000 mortgage financing required for new home
In this case, you would port $400,000 at your contracted rate of 4.90% and obtain an additional mortgage for the remaining $225,000.
Your lender will provide you with a new rate that blends your contracted rate of 4.90% and their current rate offering of 5.60%.
By utilizing the weighted average approach to merge the two rates, your new combined rate becomes 5.15%.
Porting would yield considerable savings in interest costs over an extended period since your blended rate of 5.15% is lower than your lender’s current rate of 5.60%.
Plus, you’ll avoid the hefty $7,500 prepayment penalty.
Did You Know?
Suppose you’re porting your mortgage to a cheaper home, which results in a smaller mortgage. In that case, your lender will charge you a partial prepayment penalty on the excess mortgage that you’ll pay off in the process.
Pros of Porting a Mortgage
1. Save money on interest costs
In a rising rate environment, by keeping your existing rate when you transfer your mortgage, you continue to reap the benefits of lower interest costs. Even if you require additional mortgage financing, you can benefit from a blended rate that’s still lower than your lender’s posted rate.
2. Avoid the prepayment penalty
It’s no secret that homebuyers dread prepayment penalties – the amount can easily deplete a bank account. By porting your mortgage, you can potentially save thousands of dollars.
3. No need to find a new lender
Porting allows you to retain your current lender instead of finding a new one, saving you considerable time, money, and effort. It’s more convenient to continue with a lender you trust and have cultivated a positive relationship with over time.
Cons of Porting a Mortgage
1. Fewer rate options
Porting your mortgage necessitates staying with your current lender, which is not always ideal, as competitors might offer more favourable interest rates and terms.
2. Potentially more expensive than refinancing
Once you crunch the numbers and consider all the relevant factors, breaking your mortgage contract might yield better cost savings in the long run than porting it. A prepayment penalty need not be financially overwhelming if you can secure a new mortgage with better terms and a lower rate.
3. Limited window of opportunity
Lenders provide you with a grace period in which you must purchase your new home and sell your old one. Some allow you 90 days to complete the porting process, but others might only offer 30 days.
