Moving before the end of your mortgage term typically involves breaking your current mortgage contract and getting a new mortgage with a new – potentially higher – interest rate.
However, if you have a portable mortgage, you may be able to transfer your existing mortgage to your next home while retaining the same rate. Depending on your contract and individual circ*mstances, porting your mortgage could save you money when financing your new house.
What Is Porting A Mortgage?
Porting a mortgage means transferring your existing mortgage to a new property. Your mortgage rates, term, amortization, conditions and remaining balance will stay the same after the transferral process.
When you port a mortgage, you keep your existing loan with the same lender. Because porting doesn’t require you to break your mortgage contract, you won’t incur prepayment penalties.
How Does Porting A Mortgage Work?
Lenders will typically only allow you to port a mortgage when:
- You’re simultaneously buying a new home and selling your old property.
- Your current mortgage has a fixed rate.
Mortgages that are restricted or have variable rates generally can’t be ported. If you have a variable-rate mortgage, you’ll need to convert it to a fixed-rate loan before you can port it to a new home. Check your mortgage contract or reach out to your lender to determine whether portability is an option for you.
It’s rare that you can cleanly port a mortgage to another property, since that would require the purchase price of your new home to match the sale price of your old home. Porting a mortgage to a home worth more or less than your current home will require some additional considerations.
Porting To A Home Worth More Than Your Current One
If you’re moving to a home that costs more than your old home sells for, you’ll need to cover the difference in order to port the mortgage. Since many buyers don’t have that kind of cash on hand, lenders may allow you to blend and extend your mortgage to borrow more funds.
In order to blend and extend your mortgage, you’ll need to qualify again with your lender for the new mortgage amount and follow the typical steps to getting a mortgage:
- Have your lender check your credit score and debt service ratios.
- Submit documents verifying your identity, income and employment.
- Get a home appraisal done on the new house.
If your qualifications all check out, your lender can easily port your larger mortgage over to the new property. In some cases, your lender may require you to make a larger down payment. When you blend a mortgage, your new interest rate will be somewhere between your original rate and the current market rate.
Porting To A Home Worth Less Than Your Current One
When you want to port your mortgage to a less expensive home, you may still end up with prepayment penalties if you make too large a down payment.
You may be tempted to use the proceeds for your home sale to pay down your mortgage as you port it to a more affordable home. Because of prepayment restrictions, though, most lenders won’t allow you to pre-pay more than 20% of your mortgage balance in a year without incurring a penalty. If you use the proceeds from your home sale to make a down payment valued at more than 20% of your mortgage balance, you may be charged a prepayment penalty.
You can avoid this fee if you make a small enough down payment. Putting less money down can decrease the difference between your existing mortgage amount and the new mortgage amount, lowering or eliminating your fee.
When Porting A Mortgage Makes Sense
Under the right circ*mstances, porting a mortgage can save homeowners money as they move to a new home. Transferring your mortgage might make sense for your situation if:
- Your current mortgage rate is lower than the market rate.
- You can still afford the new mortgage payment.
- When porting to a less expensive home, your potential prepayment penalties would be offset by what you save in interest.
Here’s an example of when porting a mortgage can save you money. Say you have a remaining balance of $600,000 on your current mortgage, with a fixed rate of 5%. You want to buy a home for $750,000 and port your mortgage to avoid getting the current market rate of 7%, so you opt to blend and extend your mortgage.
By blending and extending, you’re able to increase your mortgage amount by $150,000, and you receive a new blended rate between 5% and 7%. Though your rate is a little higher now, you’re still saving money with a rate lower than the market rate. You’re also avoiding prepayment penalties.
Pros And Cons Of Porting A Mortgage
Porting a mortgage can greatly benefit a home buyer in the right situation, but there are still some potential drawbacks to consider.
Pros
- Your interest rate can remain below the market rate. Again, if current mortgage rates have gone up, you can keep your current rate when you port your mortgage to a new home.
- You can finance a more expensive home. Blending and extending during the porting process can give you access to the funds you need to finance a pricier home.
- You can avoid prepayment penalties. Porting a mortgage means you’re not breaking your current contract in order to prepay your mortgage beyond what your contract allows. Since your mortgage is essentially staying the same, you can avoid prepayment penalties.
- You can extend your mortgage term. If you blend and extend your mortgage, your term will revert back to the beginning. So, if you blend and extend/port your mortgage with 2 years left in a 5-year term, your term will extend for another 3 years.
Cons
- You have a limited timeframe. Most lenders offer a limited timeframe, usually 30 – 120 days, to successfully port your mortgage. This means you have to find your new home and sell your old one within that time period to qualify for a ported mortgage.
- Your lender may not offer the lowest rates. You stay with the same lender when you port a mortgage, so you won’t be able to shop for rates.
- You may face fees. Depending on your lender and specifics of your transaction, you may need to pay fees for an appraisal, legal work or other services.
- You could still pay some prepayment penalties. Porting a mortgage to a less expensive property may trigger a prepayment penalty if you use the profits from your home sale to pay down your mortgage by more than 20%. You can avoid this penalty, or decrease what you owe, by making a smaller down payment.
How To Port A Mortgage
If you’ve decided that porting a mortgage is your best option to save money when moving, familiarize yourself with the process below.
The steps to porting a mortgage may look like this:
- Determine what you need to port your mortgage. If you’ve found a home you’re interested in, you should be thinking about what you may need to successfully port your mortgage. Consider the purchase price of your potential new home, down payment, mortgage payment and other financial factors. Also, think about whether you’ll need to blend and extend your mortgage.
- Discuss options with your lender. Before you do anything else, you should contact your lender about your porting possibilities. Your lender can tell you if your mortgage is even eligible for porting and what your options are for that process. You should also find out your lender’s timeline for porting a mortgage.
- Figure out additional financing. You may need some additional funds when you port a mortgage. For example, your new home’s purchase date could occur before you sell your current home, so you may require bridge financing to cover the down payment. If you’re moving to a more expensive home, you may also need to discuss increasing your mortgage amount with a blended mortgage.
- Get preapproved with your lender. You’ll need to qualify for a mortgage again with your current lender, potentially with all or some of the same documentation. Having a preapproval letter can also help when making an offer on your next home.
- Make your offer on the new home. With proof of financing in hand, you can make an offer on the home you want. If your offer is accepted, you can proceed with the porting process.
- Apply with your lender. Complete a full application with your lender. If approved, accept and sign your mortgage agreement. Though this is technically a new agreement, your contract, along with terms and conditions, should remain the same as before.
- Go through the appraisal process. Lenders may still require an appraisal of the new property to make sure its value meets or exceeds your mortgage amount.
- Complete the sale of your current home. Porting a mortgage requires you to buy and sell a house at the same time. While you’re preparing to port your mortgage, you also need to complete a sale of your current property. Remember that you may only have 30 – 120 days to buy and sell, so be sure to enlist the help of a real estate agent if you haven’t already.
- Transfer your mortgage to the new property. If all goes well, you’ve successfully sold your old home and qualified to port your mortgage to your new home. Complete the transfer, along with any additional payments, and enjoy living in your new home.
Porting A Mortgage Alternatives
With the potential drawbacks to porting a mortgage, not everyone will see a mortgage transfer as their best option. Consider these alternatives if they make more financial sense for you.
Break Your Mortgage Contract
If you don’t want to miss your opportunity on a new house, you can break your current mortgage contract and pay the penalties. Prepayment penalties typically only factor into closed mortgages, so if you have an open mortgage you could technically break your contract at any time without a penalty.
Even if you don’t have to pay a penalty, breaking your contract still means getting a new mortgage at a potentially higher interest rate. Make sure you can afford a higher mortgage payment before you make the big move.On a closed mortgage, your prepayment penalty amount will depend on whether your mortgage has a fixed or variable rate.
Let A Buyer Assume Your Mortgage
If you have an assumable mortgage, you may be able to transfer it to the person who buys your old home. This can free you up to get another mortgage for your new home without paying any penalty fees.
The buyer assuming your mortgage will have to qualify as they would any other mortgage. If your lender approves them, they’ll take over your mortgage, along with the same interest rates, terms and conditions.
Depending on the area or province you live in, you may still be held liable for any payments the buyer misses after they assume your mortgage.
The Bottom Line
Porting a mortgage could save you money when buying a new house. Not only can you avoid prepayment penalties, you can often retain your same interest rate. One drawback is the limited time you have to do this in, during which you’ll have to both buy a new home and sell your old one. If the process goes smoothly, though, porting a mortgage could be a great option for the right home buyer.
Want to view your mortgage options? Get started today with Rocket Mortgage Canada, UL (Rocket Mortgage™).
