Porting or Transferring a Mortgage
Porting a mortgage, also known as transferring a mortgage, is when you apply your current mortgage terms to a new home loan with the same lender — all without breaking your mortgage contract.
Porting a mortgage allows you to sell your house in the middle of a mortgage term and purchase a new one without having to pay potentially hefty prepayment penalties. It’s a process every homeowner should be familiar with.
How porting a mortgage works
Porting a mortgage is the process of transferring your current mortgage to another property after you’ve sold your current home.
When porting a mortgage, your current interest rate and prepayment privileges all remain in effect. That can be especially beneficial if current mortgage rates are higher than when you negotiated your existing mortgage.
Can all mortgages be ported?
Many lenders allow their clients to port their mortgages, but not in every instance:
You can only port if you’re buying a new property and selling your old one.
Variable-rate mortgages cannot be ported.
Most fixed-rate mortgages, however, can be ported — unless they’re restricted. A restricted mortgage typically sacrifices flexibility for lower rates.
If you’re in a variable-rate mortgage and wish to port it, you may have to convert to a fixed rate first. If you’re in a restricted fixed-rate mortgage and have to sell your home before your term expires, you won’t be able to port it. You’ll have to break your mortgage contract.
That’s why it’s critical to check the details of your current mortgage before putting your home on the market. A quick call to your lender or mortgage broker should be the first step of the mortgage porting process.
Pros and cons of porting a mortgage
In some cases, porting a mortgage can work to your advantage. It’s important to weigh the potential benefits and drawbacks before deciding whether to port your mortgage.
Pros
- Favourable terms are extended. If your current mortgage has good terms and a low mortgage rate, you may want to stick with it to pay for your new house.
- Lower monthly mortgage payments. Assuming interest rates have gone up since you negotiated your existing mortgage, your payments will be lower than if you break your current mortgage contract and sign a new one.
- No penalty. Since you’ll be transferring your mortgage and not breaking it, you won’t be charged prepayment fees (unless you are reducing your mortgage balance).
Cons
- You may not get the lowest rate. Other mortgage providers may have better rates than what your current lender is offering.
- Limited time. Your lender will only give you between 30 and 120 days to port your mortgage. This may not be enough time to buy a new home and sell your old one.
Porting to a home worth more (or less) than your current home
In practice, a lot depends on whether the home you’re moving to is more or less expensive than your current home. Here are key differences between porting a mortgage that is too small for your new home and porting a mortgage that’s too big for your new home:
Moving to a more expensive home | Moving to a less expensive home | |
|---|---|---|
Bottom line | You need to borrow more. | Your current mortgage is too big for your new home. |
You’ll probably want to look into: | What your current mortgage’s pre-payment penalties are. | |
How does that work? | Your lender gives you a new mortgage term with a rate between your current rate and one they’re currently offering on the additional amount. | Your down payment and mortgage can’t exceed the value of the new home. The good news is that your overall debt load goes down. The bad news is that “paying off” that original loan may trigger pre-payment penalties. |
Will this break your current mortgage contract? | No. Although you essentially begin a new contract with a new term, you don’t break your current contract. | Maybe. Many mortgages allow some amount of penalty-free pre-payments. |
Will you start a new term | Yes. | No. |
Will you need to re-qualify? | Yes. | No. |
Other options? | If you have additional savings, you could increase your down payment to reduce your need to increase the amount you borrow. | You could make a smaller down payment, which would increase your monthly payment. But remember: Down payments under 20% are more costly. |
When does porting a mortgage make sense?
Deciding whether to port your mortgage comes down to simple math. If it saves you money and you can afford the new mortgage payment, it’s generally a good idea.
Let’s say:
The remaining balance on your mortgage is $400,000, and you’re paying a fixed rate of 3%.
The new home you want to purchase is $500,000, and current interest rates are at 5%.
That means you need to borrow an additional $100,000. If you were to port your mortgage and blend-and-extend, your lender would give you an interest rate between 3% and 5%. You’d also start a new term. That’s better than current rates — and you’re not paying any penalties — so you should come out ahead.
Crunching these numbers is much easier and more accurate with the help of an expert, so ask your mortgage lender or mortgage broker for assistance if porting is something you’re considering.
When does porting a mortgage not make sense?
Porting a mortgage may not be the best option if:
A strong offer from another lender may outweigh any costs you face.
Your current rate may be much higher than getting a new rate.
The benefits don't offset your pre-payment penalties.
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Alternatives to porting a mortgage
Instead of porting a mortgage, you can break your current mortgage before your renewal date and pay a penalty. These penalties can be quite high for fixed-rate mortgages — the only kind that can be ported — especially if there is considerable time left on the term.
After breaking, you could then choose a different lender who might offer a lower interest rate compared to your lender’s blend-and-extend offer.
Another alternative is to let the buyer of your current home assume your mortgage. This only works if both parties are interested and your lender approves it.
For the buyer, the potential benefit of assuming a mortgage is access to a lower interest rate. As the seller, you’d be off the hook for the mortgage and wouldn’t need to pay any penalty fees because you’re not breaking the contract. In some provinces, however, the seller may remain personally liable on an assumed mortgage if the buyer misses a payment, so be sure to understand the rules in your jurisdiction.
Frequently asked questions
How much does porting a mortgage cost?
How much does porting a mortgage cost?
Porting a mortgage shouldn’t result in any new fees, but it can cost you in other ways, including higher interest rates, appraisal fees or prepayment penalties.
Is porting a mortgage hard?
Is porting a mortgage hard?
Porting a mortgage can mean re-qualifying, which requires document collection and income verification. You could face a delay if getting your new home appraised when the housing market is busy and local appraisers are dealing with backlogs. You may be expected to complete the porting process within 30 and 120 days of approval, so you could face difficulties if you’re trying to sell your home when the market is slow.
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