How to Port a Mortgage

How to Port a Mortgage

Do you need a new home for your expanding family and want to know how to port a mortgage? Perhaps you have heard about porting a mortgage and want to find out more about it.

Look no further. The following guide will break down everything you need to know about how to port a mortgage. We will also run through other important information you need to consider before selecting to port your mortgage.

It is important to note that many Canadians are not aware of the option to port a mortgage. When selling their existing home to buy another, many believe they must break their current mortgage contract. However, this is not the case, as you will soon discover.

What does it mean to port a mortgage?

The first thing you must be clear on when investigating how to port a mortgage is what porting means.

Porting your mortgage entails transferring your current mortgage agreement from one property to another. In other words, should you want to sell your existing home to buy a new one, you would consider porting your mortgage.

When porting your mortgage, you essentially transfer your current agreement from one property to another. Therefore, one would consider porting during an existing mortgage term to avoid breaking the mortgage contract.

The porting process includes transferring your current mortgage rate from your old house to your new one. When you know how to port a mortgage, it can be beneficial if your current rate is reasonable. However, there are certain elements to consider before getting started.

When is porting a good idea?

There are some pros and cons to consider when determining how to port a mortgage. Porting your mortgage may not be the best solution for your situation.

For instance, it is best to consider porting your mortgage if you sell your existing home to purchase a new one. You should not consider porting if you are not buying another property.

You would benefit most if the current mortgage rate offered by lenders is higher than the rate you are paying. When understanding how to port a mortgage, you will note that you can maintain your current interest rate after porting. That means that when market rates are higher, you will benefit from porting rather than applying for a new mortgage.

If the current rate offered by lenders is lower than the rate you are paying, you may be better off breaking the agreement. Breaking a mortgage agreement will, however, incur a penalty. Therefore, before going ahead, consider the cost of doing so versus porting and continuing at the current rate. 

You should note that not all mortgages are portable. Therefore, before exploring how to port a mortgage, you should find out whether you can port your mortgage.

Is my mortgage portable?

There are specific criteria that may disqualify you from porting your mortgage. For example, if based on a variable interest rate, your current mortgage agreement may not qualify. This possible disqualification is because a variable-rate mortgage is subject to market fluctuations, making it unstable. 

Should you wish to port your mortgage, your lender will require you to switch to a fixed-rate mortgage contract. Doing this will give you a better idea of what to expect regarding monthly payments during the mortgage term. It also allows your lender to calculate the rates going forward, considering the variance in property price.

On the other hand, your current mortgage contract is more likely to qualify if based upon a fixed rate. However, it is not a given, and you will still need to approach your lender to confirm.

You should also note that when you enter into a mortgage agreement, you should ask about the portability of the mortgage. Your lender will be able to confirm this from the get-go. And it would be good to know should your plans change during the mortgage term.

How do I qualify to port my mortgage?

Below are a few things lenders will look into when you approach them to port your mortgage.

Interest rate.

As mentioned above, lenders will first determine if your current mortgage agreement relates to a variable or fixed rate. If on a variable rate, they will ask you to move to a fixed-rate mortgage agreement. 

Note that this may change other conditions within your agreement as well. When learning how to port a mortgage, it is best to consult a broker before moving forward.

Cost of the new home vs old home.

It is quite common for Canadians to move to a bigger home due to increased family or income. Therefore, the mortgage required for the new property is usually more significant than that of the existing property.

It should, however, not be a cause for concern as you explore how to port a mortgage. Your lender will consider your current mortgage payments and those required for the new property. They will then offer you what is known as a blend and extend option.

You will have the option to pay an average between your current payments and those of a new mortgage. If so, your lender will extend the payment period for the mortgage accordingly. 

Background checks.

Bear in mind that moving to a home worth more than your current home will require you to borrow more money. You are, therefore, essentially applying for a larger mortgage than your current one.

In this case, lenders will likely carry out routine background and credit checks to mitigate risk. While you may have undergone these checks for your existing mortgage, the loan amount you applied for was less. To lend you more, lenders must ensure that you can afford to make your slightly higher monthly payments as agreed.

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What to consider when investigating how to port a mortgage.

Understand that each lender has its own terms and conditions stipulated within their contracts. It is, therefore, advisable to consult a broker to determine whether porting your mortgage will benefit you.

If you would like to know how to port a mortgage, you must consider the following points.

Porting period.

Consider that the allotted period for porting your mortgage will differ from one lender to another. Some lenders will allow up to 120-days to port your mortgage from your older home to your new one. In contrast, others may only allow for as little as 30-days. 

If you still need to sell your current home, purchase a new one, and arrange to move, 30-days may not be enough time. You must, therefore, determine the terms of your contract and consider how this will affect your circumstances.

Moving out of town.

Should you be moving to another city for work reasons, you must consult your lender before moving. The reason being that if you are in a different province or your salary changes, it may change your borrower profile. In which case, your lender may ask you to re-apply for a mortgage.

Are there alternatives to porting a mortgage?

The alternatives available when looking at how to port a mortgage differ dependent upon your specific circumstances.

Refinancing your mortgage.

One option to consider is the refinancing of your mortgage. Refinancing involves breaking your current mortgage agreement and negotiating a new one.

Refinancing will only be beneficial if the current rate offered by lenders is lower than the rate you are paying.

Bear in mind, though, that when breaking your existing mortgage agreement, you will incur a penalty. This penalty will be the equivalent of 3-month’s interest.

Having your mortgage assumed.

Another option is to get the buyer of your home to take over your current mortgage agreement. This is known as an assumable mortgage. Your lender will need to agree to this and would likely have to do a background check on the buyer first.

If possible, the buyer may be keen to benefit from an interest rate lower than that offered by lenders. If your current interest rate is lower than that provided by lenders, though, it will not benefit you. 

That is unless you are not planning on purchasing another home and applying for another mortgage. But, if you want to buy another property and already enjoy favourable interest rates, it is best to consider porting if possible.

What we have learned about how to port a mortgage.

As you can see, it is essential to begin by finding out what your current mortgage terms are. The most crucial information to pinpoint is whether your mortgage terms allow for porting and your current percentage interest rate.

With this information, you can ascertain whether porting your mortgage will be to your benefit or if you should contemplate alternative options. It is, therefore, best to speak to a broker when first learning how to port a mortgage. You will benefit from their advice when determining whether porting is an option for you. They will also be able to help you establish whether porting your mortgage will be beneficial to you.

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FAQs about How to Port a Mortgage

What does it mean to port a mortgage?

Porting your mortgage means transferring your current mortgage agreement to another property. In simple words, it’s selling your current home to buy a new home.

Is porting a good idea?

Porting is a good idea if you want to sell your existing home so that you can purchase a new one. It’s more beneficial for you if the current mortgage rate offered by lenders is higher than the rate you are paying. In other words, it’s better to port rather than to apply for a new mortgage when the market rates are higher.

Is my mortgage portable?

It depends on your mortgage, for example if your mortgage is on a variable interest rate then your mortgage might not quality. It’s better to check with your agreement and speak to a financial advisor.

How do I qualify to port my mortgage?

Lenders look at interest rate, the cost of your home and background check. The interest rate might change depending on the condition with your agreement so it’s better if you consult a broker first. The cost of your current home compared to the new home is looked at by the lender so that they can offer you of what is called a blend and extend option. Background checks are important so that the lender can see any mitigating risks in regard to your payment history.

Are there alternatives to porting a mortgage?

Yes. You can either refinance your mortgage or have your mortgage assumed. Refinancing your mortgage means breaking your current mortgage agreement and applying a new one. Having your mortgage assumed means to get the buyer of your home to take over your current mortgage agreement.

July 14, 2021
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