Mortgage Basics

How to Port a Mortgage | Pros & Cons

How to Port a Mortgage | Pros & Cons

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    When life circumstances change, and you need to move to a new home before the end of your current mortgage term, you may be faced with the possibility of breaking your current mortgage or exploring other options. One option you may have available is the ability to port your mortgage to a new property. 

    Porting allows you to keep your existing mortgage, including the rate and terms, and transfer it to a new property without the penalty you would need to pay if you break your existing mortgage. This article will explore the pros and cons of porting a mortgage and when it makes sense to consider this option for your mortgage strategy.

    Key Takeaways

    • Porting a mortgage will transfer the mortgage to a new property, including the rate and terms.
    • Porting can help you avoid prepayment penalties associated with breaking your mortgage term.
    • Not all mortgages are portable or portable to all types of properties or locations.

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    How Porting or Transferring Your Mortgage Works

    If you are locked into a mortgage term that hasn’t ended and are selling your current home at the same time as you’re buying a new one, your lender may allow you to port your mortgage. Porting enables you to transfer the balance remaining on your mortgage to a new property instead of breaking the term, paying a prepayment penalty, and getting a new mortgage. 

    Porting or transferring your mortgage means transferring every aspect of your existing mortgage, including the interest rate, remaining term, amortization, terms and conditions, and mortgage balance, to a new property without penalty. 

    If the new home requires a mortgage amount higher than your current mortgage, you may be able to blend and extend. This option provides an average between your existing and current interest rates as a weighted average, so your new rate would fall somewhere in between. This can help you save on interest costs if rates have increased since your last term. 

    Example: How to Calculate the Porting or Transferring of a Mortgage

    For example, say you are two years into a 5-year mortgage term with a balance of $400,000 remaining and an interest rate of 2.64%. You have now decided to purchase a new home that requires a mortgage of $600,000, and current interest rates are 5.24%. 

    You would need an additional $200,000, so your lender may allow you to blend and increase when porting your mortgage. In this case, your blended rate would fall around 3.94%, and your mortgage term would return to 5 years. 

    However, this could potentially increase the cost of the whole mortgage needed on the new home. Another option is to set up a hybrid mortgage if your lender offers it. This option involves you having two mortgages on the same property. The first one will be your original mortgage on the old property, continuing at 2.64% for its 2 remaining years, while the second mortgage component could be on a 2-year, 3-year, 4-year or 5-year term, depending on your savings and the available options with your lender or the insurability of the property.

    For instance, if your old mortgage was insured, but the new property is being bought with a downpayment greater than 20%. The new mortgage may be uninsured or insurable, so the old mortgage rate may not be transferable to the new property.

    It could also be true that your lender does not offer hybrid mortgages or collateral charge registrations. In this case, you’ll have to do a cost analysis to determine if paying the prepayment charge makes sense, discharge the old mortgage, and then search for a more competitive rate.

    Pros of Porting Your Mortgage

    1. Avoid Prepayment Penalties: One of the primary advantages of porting a mortgage is that it allows you to avoid prepayment penalties associated with breaking your mortgage term early. 
    2. Competitive Interest Rate: If you have a lower interest rate on your existing mortgage, porting allows you to keep that rate or blend and extend or blend and increase to a new, lower rate when you move the mortgage to a new property. This can be particularly advantageous if current mortgage rates are higher than the rate on your existing mortgage. Your new rate will take into account both the new and old mortgage rates, terms, principal balances and amortizations, so the calculation can be a bit more complicated than porting with a hybrid mortgage option.
    3. Cost Savings: Porting a mortgage can also lead to cost savings. You can save significant money over the term by avoiding prepayment penalties or higher interest rates if rates have increased since your term started. Moreover, if rates have increased, your calculated penalty on your fixed mortgage would be lower than if rates had decreased.

    Cons of Porting Your Mortgage

    1. Limited Flexibility: Porting a mortgage requires you to sell your current home and purchase a new one simultaneously. This lack of flexibility can be a disadvantage if you cannot find a suitable new property within the specified time frame, usually between 30 and 120 days, depending on the lender.
    2. Unable to Access Lower Rates: If interest rates have fallen since you started your mortgage term, porting may mean that you miss out on the opportunity to secure a lower interest rate. If current mortgage rates are significantly lower than your existing rate, breaking your existing mortgage may be more cost-effective.
    3. Mortgage Amount Limitations: When porting a mortgage, there may be limitations on the total amount you can transfer to the new property. If the new property is valued at $1 million or more and you have an insured or insurable mortgage, you may not be able to transfer the mortgage. In this case, you may need to explore alternative financing options or consider breaking your mortgage.
    4. Limited Lender Options: Not all lenders offer porting options, and those that do may have specific requirements or restrictions. Most lenders do not offer to port your variable or adjustable mortgage rate. However, it may be worth the 3-month interest penalty on this type of mortgage to locate a more competitive rate with nesto.
    5. Additional Costs: While porting a mortgage can help you avoid prepayment penalties that you’d pay for breaking the term, additional costs and fees may still be involved depending on your lender and mortgage terms and conditions. If porting involves additional funds, you could also experience higher payments with a reduced amortization if your old mortgage has been paid down significantly.  
    6. CMHC Top-Up Fees: If you’re porting an insured mortgage to a new property and will need to insure the new mortgage if your lender’s guidelines allow, you’ll need to pay the CMHC Top-up Premium. The cost of default insurance top-up premiums can sometimes be more than just insuring the new mortgage as is. A complete cost analysis by your nesto mortgage expert will help you decide the most cost-effective choice for your financial circumstances. 

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    Should You Port a Mortgage?

    You should consider porting your mortgage if you are part-way through your current mortgage term. Porting allows you to avoid costly prepayment penalties that you would incur if you were to break the term. 

    Porting may allow you to maintain a more competitive rate if you have a lower interest rate on your mortgage than current rates. If you need to blend and increase to add an additional amount to the mortgage balance or increase the term length to your existing mortgage, this could still give you a more competitive rate. 

    Can All Mortgages Be Ported?

    All mortgages are not portable. The portability option will depend on the lender and the specific terms of your mortgage contract. It’s important to refer to your mortgage terms and conditions and check with your lender to determine if porting is an option and the process involved for your mortgage. 

    Restricted mortgages and variable mortgages are often not portable. Your new property will also need to meet your lender’s guidelines. Additionally, if you are relocating to a new province, you may be unable to port your mortgage if your lender does not operate there. 

    How to Port Your Mortgage

    Porting a mortgage involves several steps to ensure a successful transfer to your new property. 

    1. Assess Your New Mortgage Needs: Determine the financing requirements for your new property, including the additional amount you may need to borrow. Consider factors such as the purchase price, down payment, and other financial considerations.
    2. Contact Your Lender: Contact your lender to inquire about their porting options and discuss your situation. They will provide information on the porting process, your eligibility, and if there are any associated fees.
    3. Complete the Application: You must qualify for the mortgage using the same process as when you first obtained your mortgage. If your new property’s purchase date is expected to be before your old property’s sale date and the downpayment is coming from the sale of the old property, then you may need bridge financing. Ensure that your lender provides bridge financing and the process and fees involved so that you’re fully prepared for your financing needs.  
    4. Appraisal and Property Evaluation: Your lender may require an appraisal or property evaluation (PAT) to assess the value of the new property. This step helps determine the maximum mortgage amount they can offer for the new property if its value is lower than the purchase price.
    5. Review and Sign the Mortgage Agreement: Once your application is approved, carefully review the terms and conditions of the new mortgage agreement. Ensure that you understand the obligations and responsibilities associated with the new mortgage.
    6. Coordinate the Sale and Purchase: To ensure a smooth transition, coordinate the sale of your current property and the purchase of the new property. Some lenders will only allow 30 days, while others may allow longer, so you will need to work on a tight deadline. Work closely with your real estate agent, lawyer, mortgage expert and lender to ensure all necessary steps are taken to meet the timeframe your lender allows.
    7. Transfer the Mortgage: Once your current property is sold, your lender will transfer or port your existing mortgage, including the rate and terms, to the new property. The remaining balance of your mortgage will be adjusted to reflect the new property. 

    Frequently Asked Questions

    Can I port my mortgage to a more expensive home?

    You can port your mortgage to a more expensive home. However, you will likely need to borrow additional funds to cover the difference, which may affect your mortgage rate. When you need a larger amount than your current mortgage balance, your lender will likely calculate a blended mortgage rate that will apply to the total mortgage amount once it is ported.

    What happens if the new home is cheaper?

    If the new home requires a mortgage less than the current balance on your existing mortgage, you may have to pay a prepayment penalty on the portion not required for the new property.

    Are there costs associated with porting a mortgage?

    Some costs may be associated with porting your mortgage but vary depending on the lender and the situation. These could include administrative, legal, default insurance top-up premiums or appraisal fees.

    What if my lender doesn’t allow me to port my mortgage?

    If your lender or specific mortgage doesn’t allow you to port, you may need to consider breaking the mortgage, requiring you to pay prepayment penalties.

    Do I need a lawyer to port my mortgage?

    A real estate lawyer or notary will be required to complete the mortgage instructions and register the title of the new property. Additionally, they will offer you valuable advice before you purchase the home and ensure that all requirements are met to complete the purchase and sale, which includes purchasing title insurance on your behalf if required. 

    Final Thoughts

    Porting your mortgage can be a valuable option when you have yet to reach the end of your mortgage term and need to move to a new property. Transferring your existing mortgage can help you avoid penalties for breaking the mortgage before the end of your term and help you keep a lower interest rate if rates have increased since your term started. 

    However, you must carefully weigh all variables involved, including whether your mortgage is portable, your interest rate compared to current rates, and the penalties associated with breaking your mortgage to determine if porting is possible and provides cost benefits over breaking the mortgage. Before making a decision, contact nesto’s mortgage experts to see if porting your mortgage makes sense for your financial circumstance.

    Why Choose nesto

    At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

    nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

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