Pros & Cons of Porting a Mortgage
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Are you in the market for a new home and are thinking of porting your mortgage? Mortgage portability is a great way to save money on a purchase when you move homes. If done right, porting a mortgage can provide financial flexibility and reduce the costs associated with buying a new home. Here are some quick tips to better understand mortgage portability in different scenarios, as well as some pros and cons of porting your mortgage!
Key Highlights
- Porting your mortgage is when you transfer your current mortgage rate and terms to your new property.
- Porting your mortgage can help you avoid paying a discharge penalty for breaking your mortgage agreement.
- Not every mortgage agreement gives you the flexibility to port your mortgage.
How Does Porting a Mortgage Work in Canada?
Whether you own a home and are planning to move to a new one or you are in the market for a first home with plans to move in the future, mortgage portability is something worth considering. Basically, porting your mortgage is when you transfer your current mortgage rate and terms to your new property. Not only that, portability also helps ensure that you don’t face any penalty fees.
However, it’s important to note that portability isn’t always available in all scenarios, so be sure to look into your portability options before committing to a new property.
Pros of Porting Your Mortgage
Depending on your financial situation, the pros of porting your mortgage will save you a lot of money in the long run. Here’s when porting your mortgage is a good idea.
Keeping your good mortgage terms
When you port your mortgage, you are basically transferring the mortgage associated with your previous home purchase to your new home purchase. If mortgage rates are on the rise, the biggest financial benefit of porting your mortgage is keeping your good mortgage terms instead of having to secure a new mortgage with higher interest rates. This means lower monthly payments for your new home!
Porting to avoid paying a penalty
Porting your mortgage will help you avoid paying penalty fees for breaking your mortgage agreement. If you sell your home and purchase a new one, you will have no choice but to break your mortgage and get a new one (potentially, with a higher interest rate) if you are unable to port it.
Blended rates can lead to lower monthly fees
The purpose of blending a mortgage is to let you keep your current mortgage rate, while getting a new rate on the additional mortgage amount.
Even if you are porting your mortgage, your lender will want to assess you for your new home purchase, much like when you are shopping for a new mortgage. This time around, your lender will take into consideration your personal finances and the value of your new home. Typically, a lender will have you “blend” your mortgage if the new mortgage required exceeds the current remaining mortgage balance , since you now require a larger mortgage.
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Cons of Porting Your Mortgage
Porting sounds like a sweet deal, but depending on your mortgage agreement and the housing market, the cons of porting a mortgage can have the opposite effect. Here’s when porting your mortgage is not an ideal option.
Very little time to decide
The most significant setback of porting your mortgage is that you have very little time to do it. Most lenders will give you between 30 and 120 days to port your mortgage. This may be enough time for you to buy a house if you were already shopping beforehand, but might not be enough time for you to sell your current home. This shouldn’t matter as you will likely move into your new home the same day that you sell your hold home.
You might miss out on better rates from other lenders
When you are buying your first home and are on the lookout for a mortgage provider, it is always recommended that you shop around for a lender who will give you the best rate. The same thing applies to porting your mortgage! It’s always important to check for better rates out there, your long-term savings might cover your penalty.
Can You Transfer Your Mortgage?
1. Determine if your mortgage can be ported
The first step in porting your mortgage is checking if you can port your mortgage. Not every mortgage agreement gives you the flexibility to port your mortgage.
2. Portability of variable vs fixed rates
Typically, mortgage lenders will only provide you with the flexibility to port your mortgage in your agreement if you are opting for a fixed rate mortgage. If you are planning on buying a new home with the hopes of porting your mortgage in the future, finding a lender that will provide you with a variable rate might be difficult.
3. Make adjustments based on your new home’s purchase price
Your new home’s purchase price will have an impact on your savings from porting your mortgage. If the required mortgage amount is significantly higher than the remaining balance on the mortgage of your previous home, your lender might have to blend and extend your mortgage rate. Make sure you are financially prepared to deal with potentially higher interest rates on any additional mortgage amount.
Is Porting Your Mortgage the Right Decision?
Whether or not porting your mortgage is the right decision depends entirely on your personal and financial circumstances. There are many benefits to porting a mortgage, especially if your current interest rate is significantly lower than the new interest rates being offered. However, mortgage portability is not for everyone; doing research, checking your current mortgage agreement, and shopping around for mortgage providers to find the best rate will help you determine if mortgage portability is the right path for you.
FAQ
Does porting your mortgage avoid early prepayment penalty?
Yes, porting your mortgage allows you to avoid all or a portion of penalties for breaking your mortgage.
Does porting your mortgage require a credit check?
When porting your mortgage, lenders will still assess you in the same way they do when you are getting a new mortgage. Checking your credit score is a part of this process.
Do you keep the same interest rate when porting your mortgage?
Yes, when you port your mortgage you are transferring your mortgage rate and terms to a new property. However, if you require a higher mortgage amount than your current remaining balance then a lender might blend your mortgage. This means that you will need a larger mortgage and will have to pay a new interest rate on the extra amount of your new mortgage.
Final Thoughts
Mortgage portability is a great way to save money on purchase when you move homes. If done right, porting your mortgage can provide financial flexibility and reduce the costs associated with buying a new home. As mortgage rates are on the rise, it may be worth taking a moment to consider whether or not to port your mortgage. We recommend using our mortgage calculator to compare current mortgage rates and see if it makes sense for you to port your mortgage.
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