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Suppose you are considering moving homes but are worried about the possibility of a high penalty for ending your existing mortgage early. In that case, you should consider porting the mortgage to your new house.
Mortgage porting allows you to transfer your mortgage from one property to another without breaking your current mortgage contract.
This guide explains what mortgage porting is, how it works, what type of mortgage can be ported, and the pros and cons of this option.
Mortgage porting means moving your mortgage, including the conditions, interest rate, term, and amortization, from your current home to a new house. Porting a mortgage requires that you sell the existing house. That means you can use it only when buying a new house while selling your existing home.
It makes sense to port a low-interest mortgage to your new house if the current mortgage rates are higher than your existing mortgage. That could save you thousands of dollars in interest expenses over the loan term.
Not every mortgage can be ported. If in doubt, the first thing to contact your lender to find out if your mortgage is portable. Or, if it is something you want for your new mortgage, then talk with your mortgage adviser to source mortgages that can be ported.
Porting is an option added to fixed-rate mortgage contracts to help homeowners move their favourable mortgage terms to their new property. It involves discharging the mortgage claim on your existing property and registering the mortgage claim on the new property.
You can also increase the balance of the ported mortgage if the amount you need to purchase your new house is higher. If you qualify for the increased mortgage amount, the lender will combine both mortgages in a process called ‘Blend and Extend.’ There is no penalty if you blend and extend your ported mortgage.
On the other hand, the lender may charge you a penalty difference if you need a lower mortgage amount for your new house than what you owe on your existing property.
For example, let’s say you have a $400,000 mortgage balance on your current property, but you only need $350,000 in mortgage to purchase your new house.
If you want to port over your existing mortgage to your new house, the lender may charge you a prepayment penalty on the $50,000 difference.
Assuming interest rates went up since you had the mortgage on your current property, porting this mortgage will allow you to enjoy this lower rate in a high-interest rate environment. That could save you thousands of dollars over the term of the mortgage.
Porting a mortgage usually comes with reasonable terms that help you reduce the home loan cost. That’s why most people choose to stick with it.
Since you are not breaking the mortgage contract, you won’t be charged a penalty for transferring your mortgage to a new property. You may be penalized if your new loan amount is lower than what you currently owe on your existing property.
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Unfortunately, you cannot port a mortgage from one lender to another. If avoiding prepayment penalties is your only reason for porting your mortgage, you may lose out on low rates, and better term offers from other lenders.
The ported mortgage may no longer meet your current needs. Your situation might have changed in ways you had not anticipated when you first got the mortgage. You may need access to more cash, so it will be better to go with a collateral charge mortgage or a mortgage with flexible payment terms like variable-rate mortgages.
The lender usually gives you 90-120 days to port your mortgage. This might not be enough time to purchase a new home and sell their old one for some people.
In most cases, porting a mortgage can undoubtedly work to one’s advantage. However, sometimes getting a new mortgage may make more financial sense.
If you decide that porting your mortgage can benefit you, you should consider speaking to the mortgage broker.
In addition, before signing for a new mortgage, make sure you have the option to port in case you need to relocate again.