When moving to a new home before your current mortgage term ends, you have an essential decision to make – should you break your existing mortgage and get a new one for the new property or port (transfer) your current mortgage?
This guide will explore everything you need to know about porting a mortgage in Canada, including how it works, the key benefits, eligibility requirements, the porting process, and factors to consider before deciding if it’s the right option for your unique situation.
How Portable Mortgage Works in Canada?
Porting a mortgage (or transferring) is moving an existing mortgage from one property to another when the homeowner purchases a new home before their current mortgage term ends.
By porting a mortgage, the homeowner can transfer the remaining balance, interest rate and terms of their current mortgage contract to the new property.
Here is an overview of how porting a mortgage in Canada works:
- Your current interest rate, remaining amortization period, and all your mortgage’s original terms and conditions stay the same.
- The outstanding principal balance left on your current mortgage is transferred directly to the new property.
- You avoid any prepayment penalties or discharge fees that come with breaking your mortgage early.
- No new mortgage application is required – just a requalification to ensure you still meet the lender’s standards.
- The entire porting process happens between your two real estate lawyers and the mortgage lender.
- Your mortgage term continues on the new property as if it was never interrupted.
Porting to a Higher Value Mortgage
If your new home is worth more than your current one, you’ll likely need to increase your original mortgage amount unless you can pay the price difference in cash.
To qualify for added financing, your lender will reassess your income, debts, credit score, and ability to handle higher mortgage payments.
Many lenders will offer “blend and extend” in this situation, applying a blended rate between your existing rate and their current rates. This extends your mortgage term, often resetting it to a full 5-year term. The blended rate on the increase will be higher but still below current market rates.
For example, here is how Blend and Extend could work:
| Current Mortgage | New Added Amount | Blended |
| Amount | $300,000 | $200,000 |
| Rate | 4% | 5% |
| Remaining Term | 3 years | 5 years |
| New interest rate: 4.24% | ||
By blend-and-extend, you get a 4.24% rate on the new higher total mortgage amount, saving 0.76% vs. current rates.
Porting to a Lower value Mortgage
If you downsize to a lower-value property, your mortgage amount will decrease. However, prepaying more than 20% of your original principal in a year can trigger prepayment penalties.
To avoid this, you may opt to lower your down payment on the new home, leaving more of your original mortgage balance intact so penalties don’t apply.
For example, if your current mortgage is $300,000 and your new home costs $200,000, you could make a 10% down payment of $20,000 instead of 20% to keep your mortgage amount higher and avoid prepayment costs.
What are the Benefits of Porting a Mortgage?
Porting a mortgage allows homeowners in Canada to enjoy several financial and practical benefits compared to breaking a mortgage contract early and getting a new mortgage.
Avoid Penalties
If you break your mortgage contract before the end of the term, the penalties can amount to thousands of dollars. Your lender will apply the higher of two computations for your penalty: the 3-month interest rate or the Interest Rate Differential (IRD). Typically, the IRD is the higher of the two. [Source]
By porting the mortgage instead of breaking the contract, you can transfer the mortgage to the new property without triggering these penalties, resulting in significant cost savings.
Maintain a Lower Interest Rate
Porting gives homeowners the advantage of locking in their current interest rate, even if market rates have risen significantly since they first secured their mortgage. This results in substantial interest cost savings over the remaining mortgage term.
No Impact on Credit Score
Unlike breaking a mortgage, which can negatively impact your credit score, porting mortgages gives you the flexibility to move without worrying about consequences to your credit score, which plays a crucial role in your future mortgage financing options.
Other Benefits
Porting a mortgage also allows you to stick with the same lender, avoiding the need to reapply and go through the entire mortgage approval process again. There are also no appraisal fees when porting, which does not affect your First Time Home Buyer status.
Mortgage Portability Eligibility
While porting a mortgage offers advantages, only some mortgages can be ported. Your eligibility will depend on several key factors:
- Type of Mortgage
Most fixed-rate mortgages can be ported to a new property with the same lender. On the other hand, variable-rate mortgages generally cannot be ported. To port a variable rate mortgage, you would first need to convert it to a fixed rate term, which may require paying some prepayment penalties.
- Mortgage Restrictions
Some lenders offer restricted mortgages with lower rates but less flexibility. These mortgages tend to prohibit portability, so check your mortgage documentation carefully. If you have a restricted mortgage, there will be other options than porting.
- Requalification Requirements
Lenders will require you to requalify before approving the mortgage transfer. Your financial situation must meet the lender’s current mortgage qualification criteria. You need to provide updated proof of income and undergo the same credit checks and debt ratio assessments as with a new mortgage application.
- New Property Requirements
Most lenders have limitations regarding the types of properties they finance. If you are porting to a new property, it must meet your lender’s property requirements regarding type (detached homes), value, and geographical restrictions to be eligible.
When Does Porting a Mortgage Make Sense?
Given the benefits, porting a mortgage is an excellent option for many Canadian homeowners. Here are some key situations where porting offers great advantages.
Significant Time Left on Term
Porting makes the most sense when you have much time remaining on your current mortgage term, such as 2-3 years left on a 5-year term. This allows you to maximize the savings by keeping your rate low.
With only a short time left on your term, it’s often not worth the effort to port the mortgage.
Market Rates Have Risen Substantially
Suppose current market mortgage rates have increased significantly since you first negotiated your existing mortgage. In that case, porting enables you to lock in significant savings by sticking with your lower rate.
To illustrate, if you secured your current mortgage at 3.5% interest and market rates have now risen to 5%, porting the mortgage allows you to maintain the lower 3.5% rate.
Relocating Within Same Region
Porting a mortgage is generally smoother if you are moving within the same geographic area and your lender operates in both locations. This avoids potential issues with lender restrictions on lending regions.
Porting won’t be an option if you’re relocating far away where your current lender does not lend.
Strong Financial Health
It would help if you were confident that you would successfully requalify for the mortgage when porting. Assess your income, credit score, debts, and financial documents to ensure your situation is unlikely to prevent reapproval.
If you have recently lost a job, experienced a decrease in income, had a drop in your credit score, or have increased debt, requalification risks may make porting unwise or impossible.
Want to Avoid Penalties and Higher Rates
For most homeowners, the driving factors to port are avoiding penalties for breaking their term early and preventing higher new mortgage rates.
If your priority is to dodge penalties and lock into the interest cost savings from your current below-market rate, then porting a mortgage makes perfect sense.
What are the Risks of Porting a Mortgage?
While porting a mortgage can provide benefits, it also comes with potential challenges and risks to understand.
Strict Timelines from Lenders
Most lenders only allow 30-120 days between applying to port and completing the purchase of the new property. Meeting this tight timeline can take time and effort.
If you fail to meet this requirement, you will miss the opportunity to port and have to pay penalties. Therefore, careful coordination and quick timelines for both transactions are essential.
Prepayment Penalties Still Possible
If you port to a lower-value property, your mortgage amount will decrease. However, prepaying more than 20% of the original principal can lead to prepayment penalties.
To prevent this, work closely with your mortgage advisor to structure the down payment and purchase price so that your new mortgage balance stays high enough to stay under the prepayment threshold.
Added Funds at Higher Rates
If you need a higher mortgage amount for the new home, you will pay current mortgage rates on any added funds above your current balance. This is likely a higher rate than your existing mortgage.
While lenders may offer blended rates, you still pay more interest than if your entire mortgage could port at the low rate. Carefully weigh the higher costs before deciding to port.
Requalification Risks
Even if you originally qualified, requalification when porting a mortgage is not guaranteed. Changes in your finances or tightened lending rules could make approval difficult. For example, if your income has decreased or debts increased since securing your original mortgage, you may have difficulty requalifying at the same amount.
Before assuming you qualify, assess your current income, debts, credit score, and financial health objectively. Do not rely on previous approval.
Lender’s Rules and Restrictions
Each lender has specific limitations and rules for porting, which relate to location, property types, loan sizes, and other factors.
Don’t presume you can port because portability may be possible in general. Talk to your own lender first about the specific restrictions that apply to your situation.
Understanding the potential challenges and downsides allows you to plan appropriately. Consult mortgage professionals who can help assess your situation’s specific risks and options.
Step-by-Step Process for Porting a Mortgage
Once you determine that porting your mortgage is possible based on the eligibility criteria, here is an overview of the typical process:
1. Review your mortgage documentation
The first step is to review your existing mortgage documentation to confirm that portability is permitted. Check if there are any clauses relating to porting the mortgage within your mortgage agreement. If porting is not mentioned, you likely won’t have the option.
2. Contact your lender
If your documentation confirms you can port your mortgage, contact your lender to begin the process. Your lender will outline the requirements, timeline, and costs involved with porting.
3. Assess your new mortgage needs
Review your finances and determine how much mortgage you need for the new property, how much you can comfortably afford based on your income, debts, and expenses, and the down payment amount you will make.
If you need to increase your mortgage amount compared to your current balance, be prepared to undergo full requalification for the new higher amount.
4. Complete a new mortgage application
You will need to complete a mortgage application just like you would for a new mortgage. This means providing proof of income, your credit report, details on debts and assets, the purchase agreement, and other required documents.
The lender will assess your eligibility and decide if they are willing to port the mortgage based on their normal lending criteria and policies.
5. Sale and purchase of properties
Once your new mortgage is approved, you can proceed with the sales and purchase. However, most lenders will provide only 30-120 days for you to sell your current property and close on the new home. Careful coordination of the two transactions is crucial.
A real estate lawyer can provide guidance on properly timing the buying and selling process within the lender’s permitted period.
6. Transferring the mortgage
Once the sale of your original property is finalized, the proceeds will pay out your existing mortgage. Your lender will then transfer or port your previous mortgage balance and terms onto the new property. This process is facilitated between your lender and real estate lawyers.
Critical Decisions Before Porting a Mortgage
Before initiating the mortgage porting process, there are 4 important considerations to factor into your decision:
- Compare Mortgage Rates
Current mortgage rates on the market may be competitive enough that you could save more over your term by breaking your mortgage and getting a new lower rate, even with the prepayment penalties. Run the numbers with your mortgage broker before porting.
- Ensure Mortgage Terms Align with Goals
Think about your plans for the remainder of the term and longer-term goals related to your mortgage. Will porting your existing mortgage provide appropriate prepayment privileges, payment flexibility, and other terms that suit your needs?
- Review Bridge Financing Availability
If buying before selling your current home, bridge financing from your lender lets you port the mortgage to the new property before the old one sells. Ask your lender about bridge loan options and costs.
- Understand Added Costs
While avoiding prepayment penalties, porting may involve application fees, appraisal costs, and legal fees, much like a new mortgage. Make sure you factor in all costs in your decision-making process.
Viable Alternatives if Porting is Not Feasible
If porting your mortgage does not make sense or is not possible, you do have other options for handling your mortgage when moving:
- Break the Mortgage: You can break your mortgage by paying the applicable prepayment penalty and discharge the mortgage. You would then need to secure new mortgage financing for the new property, potentially at lower current rates.
- Have the Buyer Assume the Mortgage: If the lender permits, the buyers of your current home may take over responsibility for your existing mortgage. This prevents you from incurring any mortgage-breaking penalties. However, consult professionals on risks before going this route.
- Wait Until Renewal: Another option is to wait until your existing mortgage term is renewed before selling your current home and purchasing another property. This allows you to avoid any prepayment penalties altogether.
Key Takeaways: Porting your Mortgage in Canada
Porting or transferring your mortgage can allow you to seamlessly move to a new property without facing substantial mortgage penalties and higher interest costs. Here are 6 key summary points on porting a mortgage in Canada:
- Porting involves transferring your existing mortgage to a new property with the same lender when you move.
- Significant benefits include avoiding prepayment penalties and maintaining your current low interest rate.
- Eligibility depends on your mortgage type, restrictions, requalification status, and the new property.
- You must apply as you would for a new mortgage and meet the lender’s approval criteria.
- Timelines are tight – lenders typically only provide 30-120 days to complete the porting process.
- Consider all alternatives before deciding if porting makes the most financial sense for your situation.
Portable mortgages allow you to take advantage of your current mortgage terms and avoid expensive penalties when moving before the end of your term. However, porting comes with limitations and risks that need careful evaluation.
At Best Mortgage Online, our mortgage brokers will carefully review your case and provide tailored advice on whether porting makes sense or if alternatives like breaking your mortgage may be better.
Don’t leave it to chance – Partner with experts at Best Mortgage Online to maximize your savings!
FAQs
How does porting a mortgage work?
Porting involves transferring your mortgage balance and terms to a new property purchased before your term ends. The mortgage seamlessly moves over to the new home.
Can I port my mortgage to any property?
The new property must meet your lender's requirements for location, value, type, etc. Each lender has specific porting rules.
What are the benefits of porting a mortgage?
You avoid prepayment penalties, keep your current low interest rate, face no credit score impact, and save on fees like appraisals.
When does porting make the most sense financially?
If you have significant time left on term and mortgage rates are higher now than when you got your original mortgage.
What rate would I get when porting to a higher-value mortgage?
You may be offered a blended rate between your current and new rates on the amount needed above your current mortgage balance.
How can I avoid penalties when porting to a lower-value mortgage
Making a lower down payment keeps your mortgage amount higher, so you stay under the prepayment threshold that triggers penalties.
How long does it take to port a mortgage in Canada?
The porting process typically takes 2-4 weeks, but your lender will limit the total time from application to completion to 30-120 days
Can I port my insured mortgage to a property valued at over $1 million?
Most lenders prohibit porting insured mortgages over $1 million. You may need to switch to conventional financing.
What are alternatives if I can't port my mortgage?
Alternatives include breaking your mortgage term, having the buyer assume your mortgage, or waiting until renewal to move.
What do I need to provide to port my mortgage?
You'll need to provide the standard documents for a new mortgage application, such as proof of income, your credit report, and a property appraisal.
Article Sources
At Best Mortgage Online, we cite statistics from trusted governmental and industry organizations to guarantee accuracy.
