Porting a Mortgage: What It Means and How It Works
Leslie and Sunny found their dream home while interest rates were rising.
With two years left on their existing 2.9% mortgage, they worried about breaking their mortgage and facing steep penalties - potentially over $15,000. That's when their broker mentioned mortgage porting - a solution that could save them thousands in penalty fees and help them maintain their lower interest rate in a rising rate environment.
Why would you need to port your mortgage?
Mortgage porting is the process of transferring your existing mortgage, along with its current rate and terms, from one property to another. Think of it like picking up your mortgage and moving it to your new home. This option can be particularly valuable when current market rates are higher than your existing rate, or when breaking your mortgage would result in significant penalties. With rising rates, many Canadian homeowners still have historically low mortgage rates from the last few years, making porting an attractive option to explore.
Can all Mortgages be ported?
Not all mortgages can be ported - it depends on your lender and the specific terms of your mortgage agreement. Variable-rate mortgages and mortgages from alternative or private lenders often can't be ported, and some promotional or specialty mortgage products may also have porting restrictions. To know if your mortgage is portable, check your mortgage agreement or contact your lender directly.
How Mortgage Porting Works in Practice
Let's break down Leslie and Sunny's situation in detail: They had a $400,000 mortgage at 2.9% with three years remaining. They found a new home for $600,000. Through porting, they could:
- Transfer their existing $400,000 mortgage at 2.9%
- Add an additional $200,000 at current market rates (say 5.5%)
- Create a blended rate for the total amount
Their mortgage broker calculated that porting would give them a blended rate of approximately 3.8% on the total $600,000 mortgage. Compared to taking a new mortgage at 5.5% and paying the $15,000 penalty, porting would save them over $500 monthly in mortgage payments and avoid the substantial penalty.
Understanding the Blended Rate Calculation
The blended rate calculation is crucial to understand when porting with additional funds. Here's how it typically works:
Original Amount ($400,000 at 2.9%) + New Amount ($200,000 at 5.5%) = Total New Mortgage ($600,000)
Blended Rate = [(400,000 × 2.9%) + (200,000 × 5.5%)] ÷ 600,000 = 3.8%
How to qualify for Porting your Mortgage
Even though you're keeping your existing mortgage, you'll need to re-qualify under current lending standards.
This includes:
- Income Verification
Your lender will want to see:
- Current employment status and income
- Notice of Assessment from the last two years
- Recent pay stubs
- T4s or other income documentation
- Credit Check
Your credit score and history will be reassessed. Most lenders require a minimum credit score of 650-680 for porting.
- Debt Service Ratios
Your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios will be calculated using current stress test rates. This is particularly important if you're increasing your mortgage amount.
The Mortgage Porting Timeline
The timing of your port is crucial and typically follows this sequence:
1. List your current home for sale
2. Apply for mortgage porting pre-approval
3. Find your new home
4. Receive an accepted offer on your current home
5. Make an offer on your new home
6. Coordinate closing dates (typically within 30-120 days)
7. Complete both transactions within the porting window
Common Challenges with Porting your Mortgage
Closing Date Gaps
If there's a gap between your sale and purchase dates, some lenders offer "port and hold" options, keeping your rate and terms available for a specified period.
Property Type Restrictions
Not all properties are eligible for porting. Typically excluded properties might include:
- Commercial properties
- Certain types of condos
- Rural properties without services
- Properties needing significant repairs
Change in Financial Situation
If your financial situation has changed (job change, additional debt), you might not qualify for porting. Work with your mortgage broker early to identify potential issues.
When Porting Might Not Be the Best Option
Sometimes, breaking your mortgage and starting fresh makes more sense:
1. If current market rates are significantly lower than your existing rate
2. If you're too close to your renewal date, negating any potential savings
3. If you need a much larger mortgage and current rates are lower
4. If the blended rate would be higher than current market rates
FAQs
Q: Can I port my mortgage to a less expensive property?
A: Yes, but you may still face a prepayment penalty on the portion of the mortgage you're not using.
Q: What if I need a larger mortgage for my new home?
A: Most lenders offer a "blend and extend" option, combining your existing rate with current rates for the additional amount.
Q: Can I port my mortgage to any property?
A: No, the new property must meet your lender's criteria and be within their lending area.
Q: Do all mortgages have porting privileges?
A: No, some mortgages, particularly those with very low promotional rates or from alternative lenders, may not be portable.
Q: Can I change the names on the mortgage when porting?
A: This depends on your lender's policies. Some allow adding or removing borrowers during a port, while others don't.
Working with Deeded
At Deeded, we understand the complexities of mortgage porting and can help ensure a smooth legal process. Our team will:
- Review your current mortgage terms and porting conditions
- Coordinate with your lender and real estate agent
- Handle both your sale and purchase transactions
- Ensure all legal requirements are met
- Manage the timing of both closings
- Explain all documentation in clear language
Whether you decide to port your mortgage or start fresh with a new one, our team at Deeded's real estate lawyers can guide you through the legal process, ensuring a smooth transition to your new home while protecting your interests throughout the transaction. Contact us to discuss your mortgage porting options and how we can help make your move easier.
Remember, the decision to port your mortgage should be based on careful calculation of all costs and benefits, considering both short-term savings and long-term implications. Working with experienced professionals can help you make the right choice for your specific situation.
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