Porting your mortgage, or transferring your existing mortgage to a new property, is a great way to save money and make your home-buying process easier if you move to a new home in Canada. This is possible by preserving the conditions of your current mortgage contracts, which means maintaining your current interest rates, which is, of course, a huge plus, mostly when the interest rates on mortgages are much higher than the ones you signed with originally. On the net book value basis, you can port and escape breaking your mortgage early since it might attract pricey prepayment penalties. Therefore, this flexibility will mean you can stay out of that hassle of renegotiation with your mortgage lender or getting an entirely new loan.
Most mortgage lend
What is Porting a Mortgage?
er offer mortgage portability. However, you should always check into the specifics of your contract to confirm if this is possible for you. Maybe you are buying a new house, or downsizing, for whatever reason. Here’s how mortgage porting works so you can make the right financial decision at the right time. Some of the potential money pitfalls you’ll want to avoid include higher mortgage rate and penalty fees, and this is just the beginning.
The transfer of fixed-rate mortgages is moving an existing mortgage to a new property and carrying its previous interest rate, among other terms in the mortgage contract. Porting your mortgage into a third mortgage means transferring it allows many lenders for you to avoid breaking your recent mortgage and avoid paying any hefty prepayment penalties. This, of course, could be used when you are changing locations but still have some time remaining on your current mortgage.
Many mortgage lenders offer the portability. However, not all of them have this service. You should, therefore, scrutinize mortgage terms in your existing mortgage contract and confirm whether you can port it. Usually, this would be the best time to do mortgage porting when the current mortgage rates are higher than what is indicated as a fixed rate or in your current mortgage agreement.
How Porting a Mortgage Works?
This is porting a mortgage that simply means moving the loan to a new property. This is usually done after the mortgage involves selling one’s current property and buying another. The attractions of porting or transferring your mortgage through this process include saving on penalties since you would not be dropping the down payment or the existing interest rate on the loan. A few conditions must be in place to port a mortgage, though.
You must requalify with the lender. You will have to provide information about your income, credit, and down payment.
The existing lender will consider the new property and could demand an appraisal.
In the event you need to acquire an expensive property, you are likely to be left to borrow more money. This is likely to carry an increased interest rate that you will face regarding the additional part of your loan.
When Does Porting a Mortgage Make Sense?
In the case of porting a mortgage, it is mostly useful when your present mortgage interest rate is lower than the prevailing market or lower interest rate elsewhere. You will also save yourself from breaking your back porting a mortgage early to avoid penalty fees. However, weigh several factors such as mortgage options such as:
The current mortgage rates: Comparing the existing mortgage fixed rate that exists and your existing rate. If the rates are low, then you might consider signing up for a new mortgage.
Mortgage balance: Consider the outstanding amount of your current mortgage.
Mortgage term: If you are nearing the termination of your mortgage term, you may not need to port; before long, you will get a new interest rate from your lender.
Mortgage Contract and Portability
Not all mortgage contracts allow porting, so it is up to you to get in touch with your contract and check if it is allowed. For most mortgage lenders, porting an existing mortgage from your old house to a new one falls within the range of 30 to 120 days. This would mean that you would have to close both the sale of your existing home and finalize the purchase of your new home within the period so that you can complete the transfer of the mortgage.
You will be able to discover for yourself through your existing mortgage contract if there are any explicit restrictions or requirements associated with porting. Certain restricted mortgages have very limited portability flexibility, meaning there are fewer opportunities to transfer your mortgage. More restricted contracts may also come with higher early redemption penalties if you want to break your mortgage early.
For example, if you wish to move homes but have sold the one you are living in, this might still be too short a period for the bridging finance. In this scenario, you would probably require additional financing to cover the period that elapses between selling and purchasing the other property. It would always be sensible to verify with your lender or mortgage broker whether what you are doing matches the contract in place and is not then going to bring about some fees of penalty or prepayment charges.
You will find you have less choice for porting if the terms of your mortgage are closely restricted, and you may pay over the odds on your mortgage repayments or incur additional costs, therefore it is also imperative to be familiar with your contract details in good time. Checking the lender criteria will ensure that you are prepared with all the information you will need to port your mortgage successfully and more cost-effectively.
Interest Rate Considerations
The most compelling reason for mortgage porting is to maintain your current interest rate if current mortgage rates are high. If you were to break up your mortgage contract and sign up for a new one in the future when interest rates are lower, then you could save on monthly payments. However, doing so might result in prepayment penalties or early termination fees. The lenders impose several fees whenever an individual ends up breaking a mortgage prematurely. Thus, it’s essential to calculate whether a lower rate of a mortgage will save you more than you’ll lose in the penalty.
Another is the blend-and-extend mortgage. This gives you an option for the Lender to combine the current fixed rate you are paying with the best current market rate available. This will lengthen your term and will benefit you with a blended mortgage rate. This one is a good middle ground if you want a longer term but with monthly pay that you can handle.
In any case, one must consider what your current mortgage rate is and compare any savings or costs for porting or breaking your mortgage. Do not forget to seek the services of a mortgage broker who can guide you into choosing an option that will be beneficial to you since most lenders have policies for either one or the other term.
Qualifying for a Ported Mortgage
Even though you have a variable rate mortgages package that accommodates portability, you are still susceptible to having to re-qualify with the lender as if you were applying at the start. In other words, this means your lender will be gauging your current state of financial well-being, much like they did before they approved the mortgage. Your lender will reassess your income, credit score, and down payment on a property.
There could also be appraisal costs for the new home that has to be appraised, and whose report is considered a prerequisite to confirm a house’s value to probably qualify it to comply with lenders’ expectations. Recall that even if your recent mortgage qualifies as portable, the lender does not necessarily guarantee approval of your application, especially if your financial condition changes or a new mortgage exceeds what they can absorb.
Most lenders follow the same qualification procedure for mortgage porting as for new borrowers, and therefore, your financial profile will qualify under the lender’s criteria for the existing mortgage balance. The better you have done on your credit score and financial standing, the easier it will be to port your mortgage over to a new property.
Porting a Mortgage to a Different Property
If you are assuming your mortgage on a much more expensive house, you will need to borrow even more to top up your existing balance in the mortgage. At such a time the lender would be likely to advance a fresh amount at the going rate in the market which might create a blended rate. The blended mortgage rate considers your new mortgage and the rate for that additional money; therefore, your future mortgage payments will slightly be higher. It saves you from the consequences of calling in the mortgage ahead of schedule.
However, if you’re moving to a lower-value house, you’ll have the possibility of paying back some of that mortgage and facing prepayment fees on that portion that you repay. This often occurs when your recent mortgage balance is higher than the amount you need for your new home. Thus, downsizing can still be financially savvy but always factor these associated costs in like the prepayment fees.
In certain cases, if the gap falls between the sale of your existing property and the purchase of the new house, you may need to finance the down payment on a new home due to the delay in the closing of the sale. This financing allows you to avoid delays in your purchase and enables you to maintain mortgage portability. They can particularly prove to be of big help in preventing you from being forced to break your mortgage or secure a brand-new loan.
Porting and a New Lender
An important thing to consider here is that porting a fixed-rate mortgage refers to a transfer within the same lender. If you were switching to another lender then, it would essentially mean applying for an entirely new mortgage. In this case, you would negotiate new terms and rates.
Pros and Cons of Porting a Mortgage Portability Canada explained
Pros
Pay prepayment penalties: You avoided paying fees for breaking your mortgage early.
You keep your existing interest rate: This is highly essential especially when market rates have increased in value.
Porting options: You may port your mortgage to any higher or lower-value property depending on the conditions made.
Cons
Re-qualifications: You’ll be required to qualify again in the presence of your lender, which takes time.
Some fees: A form of appraisal fee, or you will be subjected to some prepayment fees.
Blended rates: Sometimes, for raising further funds, the blended mortgage might have higher overall costs.
Conclusion
In Canada, porting a mortgage means savvy homeowners staying at an existing mortgage rate but moving to a new house. With this knowledge of mortgage portability, you can avoid costly prepayment penalties and continue your current terms with a favorable mortgages contract. Porting, however, is a relatively complex procedure, and to make it worthwhile, one has to undergo the evaluation process of whether it would be the best financial decision to make for one’s situation.
If you are considering a port of your mortgage, or searching for alternative options with mortgages, then consult with Shelto Mortgage. A mortgage broker with years of industry experience can guide you through the whole process and help elucidate how you compare mortgage rates and make sure you’re making the very best-informed decision you can for your future. Let Shelto Mortgage take the hassle out of porting, refinancing, or getting that new mortgage—contact us today!