A portable mortgage allows you to move an existing mortgage to a new home while avoiding the prepayment penalties that would typically accompany the sale of a home. When you port a mortgage, you continue the same interest rate, terms and maturity date that you had before. So, if you locked in a great low interest rate and rates rise in the future, you could port your mortgage and continue to pay the same low rate. The only thing that changes is the property that secures the loan.
However, to port your mortgage the lender typically requires you to sell your existing property and buy a new within a certain period of time, usually 90 days. (If that timeline isn’t possible, you might want to consider a bridge loan instead.) Not all mortgages allow for portability, so if this feature is important to you, be sure to discuss it with your mortgage broker before you close.
Even if your mortgage allows portability, your lender still needs to approve the transaction by reviewing information about the home, your credit, and income history. If your financials have changed (for instance, you lost your job or had derogatory credit items since you originated the mortgage) or the property’s appraised value is much lower than the amount you plan to borrow, that could throw a wrench in your portability plans.
One great feature of mortgage portability is that you don’t have to buy a comparably priced home. If you’re upgrading homes, you may be able to borrow additional money through a blended mortgage. For instance, let’s say you had originally borrowed $300,000 at 3 percent fixed with a five-year term. You could potentially apply the equity you’d built up with the current property towards your new one and transfer the remaining loan balance to the new property.
But let’s say you’ve outgrown your old home and decide to buy a larger property that costs $500,000. Maybe you have an additional $50,000 in cash to contribute, but you need to borrow another $150,000. Assuming your debt-to-income ratio qualifies you for borrowing the additional money, your lender would offer to lend you the balance at the current interest rate. They may also blend and extend your entire term to a new five-year term. Your new mortgage would be a blend of the old and new interest rate.
While porting your mortgage can save you money on prepayment penalties and allow you to continue an interest rate and terms you’re happy with, the process will have some costs associated with it. Your lender may charge a processing fee and your lawyer will likely assess legal fees for registering a mortgage on the new property. Plus, purchasing a new home may incur additional closing costs such as property transfer tax or GST/HST.