Porting a mortgage in Canada is the practice of bringing your mortgage when you switch homes by transferring your existing mortgage to the new property.
It is a little-known option that gives you potentially lower mortgage rates and avoids penalties associated with breaking a mortgage contract.
If you want to shift to a portability mortgage, read on further and find out if you can benefit from it.
- Porting a mortgage in Canada is the practice of bringing your mortgage when you switch homes to your new property.
- Transferring a mortgage to a new property is beneficial if your existing interest rate is lower than the current rate.
- When you port your mortgage, you can buy a new home but keep the same interest rate and terms as your old mortgage.
What is Porting or Transferring a Mortgage?
Porting refers to transferring an existing mortgage on your home to a new property and continuing with the terms you and your lender agreed upon at the start.
There are a few reasons for mortgage transfer. One is to avoid paying a costly penalty and administration charges due to breaking a mortgage mid-term.
Another significant reason to transfer a mortgage to a new property is to continue benefiting from low interest rates.
Homeowners usually use this method if their existing interest rate is lower than the current rate. Many lenders in Canada offer this option and include it in the mortgage contract.
Instead of taking out a new mortgage, you can port your old one and potentially keep the same interest rate and terms without paying prepayment penalties.
How to Transfer a Mortgage to a New Property
Once you have decided transferring mortgages is for you, talk with your current lender and ask if your mortgage is portable.
Most lenders in Canada offer the porting option, but you may find that your mortgage may not be portable because you have a variable-rate mortgage.
Before you can start porting a mortgage, make sure you have a fixed-rate mortgage. If not, your lender can make the switch in exchange for arrangement fees.
If you are porting to a more expensive home, your lender will require you to follow the usual procedure when qualifying for a mortgage.
This will involve getting a home appraisal, checking your credit score, calculating your debt service ratio, and submitting the required mortgage documents.
After you have prepared and submitted the needed paperwork, you will be ready to sign a second mortgage contract.
Porting to a More Expensive Property
If you are upsizing your home, you may need to increase your mortgage amount by applying for a second mortgage and extending the length of the mortgage to a new fixed term.
This option is called “blend and extend.” With a blended mortgage, your interest and payments are blended between your two mortgages.
The interest rate you will be paying on the new mortgage will be blended into a rate that falls between your current mortgage and the rate for the additional loan.
At the same time, your lender will extend the length of your mortgage to a new fixed term, usually 5 years.
Porting to a Less Expensive Property
Selling a more expensive home and buying a less expensive one allows you to unlock your home equity and have some extra cash.
If you pay off your mortgage in this manner, there is a specific amount you can pre-pay. Your lender may allow a prepayment of 20-25% of your mortgage balance each year.
While terms and conditions vary by lender, many charge substantial fees for partial repayment.
Consider making a larger down payment on the new property if it means reducing the prepayment on the existing mortgage and minimizing paying penalties.
In some cases, taking out a new loan may be more practical than paying early repayment charges.
Related: What is a Conventional Mortgage?
Mortgage Porting Example
A mortgage porting example can be applied to a recently listed home in Edmonton.
The house costs $800,000 and has a monthly payment of approximately $3,550. It has an assumable mortgage at 1.74% and 36 months left on the term.
With a new mortgage having a 5.5% rate and a monthly amortization of nearly $5,270, the savings in monthly payments can reach more than $60,000 over the remainder of the term.
If the buyer pays down the principal faster, he can save an additional $20,000 from the amortized interest savings over 25 years.
To be sure, discuss your potential porting situation with your mortgage broker or lender, who can help you determine your payments after porting through a mortgage porting calculator.
Can You Transfer a Mortgage to Another Person in Canada?
There are situations when you may want to transfer a mortgage to another person, such as a divorce or if a loved one passed away.
If your mortgage is assumable, the transfer can be possible. The loan agreement must state that the original borrower can transfer the loan to someone else.
In an assumable mortgage, the lender allows another borrower to “assume” your mortgage without changing any of the terms.
The buyer will take over the seller’s existing mortgage. The current rate, terms and balance would stay the same.
The person who purchases the property from you will take over the mortgage balance and the amortizations and give you the cash for the balance of the price of your home.
Even with an assumable mortgage, the buyer must pass the eligibility requirements set by the lender, which include filling out an application, passing a credit check, and submitting documentation.
Pros and Cons of Porting a Mortgage
As with any credit-related process, transferring a mortgage from one house to another has some advantages and disadvantages. To come to an informed decision, learn about its pros and cons.
- Can save you thousands of dollars
- Keeps your current rate and terms, depending on your lender
- Lets you upgrade or downsize your home and keep your current rate and terms the same (or lower) throughout your current mortgage term
- Helps you avoid breaking your mortgage term and paying costly penalties
- Lets you sidestep the prepayment penalty, which can be as high as 2%
- Often benefits homeowners who are upgrading to a more expensive home
- Requires you to re-qualify with your lender, which may incur admin fees
- Not all mortgages come with the portability feature
- Your lender may charge a higher rate for the portability option
- The prepayment fee for downsizing your mortgage may be hefty
- Lenders may require you to complete the porting process in a short time, often between 30 and 120 days
- If your existing property has mortgage life insurance, you cannot transfer it to your new mortgage.
How Much Does it Cost to Port a Mortgage?
Porting a mortgage may incur fees, depending on your lender, but these are a lot less than the penalties associated with breaking a mortgage.
With some lenders, there may be no new fees, but other costs may come up in the form of higher interest rates, prepayment charges, or appraisal fees.
Should You Port Your Mortgage?
While mortgage transfer is not always the ideal move for every homeowner, it does work out for some.
Porting your mortgage is practical if, for example, you want to move to a new home without breaking your existing mortgage agreement with your lender.
The strategy helps you avoid paying steep penalties if you were to break your mortgage agreement mid-term.
The other reason to port your mortgage is if the current rates are higher and you wish to keep your interest rate.
You can use this method only if you are buying a new property and selling your old house at the same time.
The process of porting a mortgage can be challenging due to the many factors to consider, such as your mortgage contract, the portability option, the current market, interest rates, the price of your new property, etc. Timing is also a fundamental issue because lenders will require you to close the purchase of a new property within 30 to 120 days of closing the sale of your current property.
The best way to transfer a mortgage is to start by reviewing your mortgage documents if it allows porting and, if possible, find a property to purchase ahead of time. Request your lender for a transfer and seek the assistance of a lawyer to ensure the transfer goes smoothly. Complete the transfer following your lender’s process.
Yes. Porting is reapplying for a mortgage, so your lender will evaluate your paying capacity. If your records show late mortgage payments or if it thinks your finances are not in a remarkable situation, it may refuse to port your mortgage.
No, it may not be possible. Porting a mortgage means transferring your existing mortgage to the next property you want to own. Banks only allow porting of your mortgage if you buy a new property while selling your old one.
Related: Closed vs Open Mortgages