Mortgage: Thinking about transferring or porting?
RateHub breaks it down by answering some of the FAQs on transferring or porting your mortgage.
What happens when you want to move to a new home after three years in a five-year mortgage? It’s not an uncommon predicament – in fact, 70% of first-time buyers do not make it to the end of their five-year term and on average break at the 3.5 year mark.
Is it possible to transfer your mortgage from one home to another? We recently sat down with Toronto mortgage broker James Laird for a little Q&A on the matter.
What does it mean to ‘port your mortgage’?
Porting your mortgage is when a homeowner transfers their mortgage from one property to another.
When would this happen?
Porting your mortgage is an option when you have sold your current home and purchased a new home.
Can anyone port their mortgage?
No. Some lenders allow this and some do not. So if you are planning on moving during the termof the mortgage, then this is a very important feature. A good mortgage broker will be able to tell you which lenders allow porting, and which do not.
Why would I want to port my mortgage?
Porting is very valuable if the interest rate that you have secured is no longer offered on the market. Conversely, if the current mortgage rates are lower than the rate that you have, then you will likely not want to port. However, you will have to consider the penalty of breaking your mortgage early if you choose not to port.
What if I need a bigger mortgage on my new home?
When a mortgage is ported, it is very common that you will require a larger loan than exists on your current residence. This is not an issue. Your lender will offer to do what is referred to as a ‘blend and extend.’ This is essentially a weighted average between the existing mortgage and interest rate and the new money required at a current mortgage rate.
Existing Mortgage: $100,000
Interest rate: 3.0%
Require: $150,000 (so $100,000 will be ported and $50,000 will be ‘new money’)
Current Interest rate: 4.0%
Therefore, the ‘blend and extend’ will result in a $150,000 mortgage at 3.25%.
What happens if I move during the term of my mortgage and it isn’t portable?
Then you will have to pay the full penalty for breaking your mortgage early. If you are in a variable rate, the penalty will be equal to three months of interest, and if you are in a fixed rate, the penalty will be the greater of three months of interest or the interest rate differential. Therefore, having the flexibility to port can be the difference between paying a several thousand dollar penalty, and paying nothing.
Are all porting clauses the same?
No. The biggest variance between different lenders’ porting clauses is how long they will allow you to complete the port – i.e. how much time are you allowed between the close of the sale of your current residence and the close of the sale of your new residence. Lenders typically vary between 30 and 120 days. Thirty days can sometimes be tight depending on individual circumstance, but 120 days is usually enough for a homeowner to complete the sell-buy comfortably.
Even if you are not planning on moving in the short term this is still an important feature. Things change: from careers to kids to the relationship with the co-owner, we do not know what the future holds. More often than not, I find that my clients who port their mortgage did not plan on porting it when they first got their mortgage, but the feature ends up saving thousands. The next time you get a mortgage make sure to ask your mortgage broker if the mortgage he is recommending is portable.