How Does Porting a Mortgage Work in Canada?

Were you aware that over 60.7% of Canadian homes have mortgages attached to them? This is one of the least surprising Canadian mortgage statistics, given the fact that homes are bought or sold left and right.

But what if you want to sell your current mortgaged property in favor of a new one? What happens to your existing terms? Fortunately, there’s a way around that without suffering major losses – it’s known as porting a mortgage.

Read along to learn all about it!

How Does Porting a Mortgage Work?

Essentially, porting your mortgage means that you can take your existing mortgage plan – along with its terms and rate – and transfer it onto your new home. It’s like emotional baggage, you know? You take it everywhere with you until you’re finally able to get rid of it.

However, this whole process is only applicable when you’re selling your old home and buying a new one at the same time. Only then can the interest rates and terms be transferred to your new property using the so-called portable mortgage plan.

But even so, there’s no guarantee that your lender will approve of the move. Basically, when you ask to port a mortgage, you’re practically reapplying for that same deal. This doesn’t mean that your inquiry will be approved, despite being given the green light initially. 

There are several factors that influence the overall outcome, including your present-day earnings, whether and whether or not you have additional debts.

If these conditions seem like a hassle to you, there’s always the option of transferring the mortgage to another person, as long as the sum is assumable. Once the contract has been passed on, the new borrowers will be regarded as the ones initiating the loan in the first place.

Pros and Cons of Porting a Mortgage

Plenty of homeowners assume that a mortgage transfer is the most favorable solution when settling down in a new location. Let’s take a look at a few deal-breakers that help you decide whether or not such a step is truly beneficial.

Pros:

• Good terms – If your existing mortgage plan has favorable conditions, then there’s no reason why you’d want to let them go. In cases like this, it’s best to transfer the mortgage to a new property and retain its useful features.
• Low monthly fees – Even if the average monthly rate of interest or arrangement fee has gone up since your last deal, the blended rate of the ported mortgage won’t put a strain on your budget. Blended rates are calculated by putting together the sums of past and present rates and then divided by two, resulting in a budget-friendly combination.
• No penalties – Porting a mortgage in Canada is definitely a more affordable solution as opposed to breaking your current plan and being forced to pay an exit fee or penalty and then starting from scratch.

Cons:

• Limited time – Sadly, you won’t have all the time in the world to reach a decision. Lenders usually allow only a limited time frame, anywhere from 30 to 120 days, in which you’re expected to sell your old home and buy a new one.
• Other lenders may offer better rates – When porting a mortgage, you’re not exactly considering all of your options. Due to the imposed tunnel vision, you might miss out on better offers or lower rates from competing lenders.

Can you Pull off a Mortgage Transfer?

Deciding to port a mortgage alone isn’t going to cut it. There are several factors that determine whether or not you’re actually able to achieve that.

Mortgage Contract

Not all types of mortgages can be ported. These details are generally discussed when the initial agreement takes place, which means they can’t be renegotiated later on. If you don’t have a portable mortgage, there’s no way to change that. Make sure to consult with your lender before putting your home up for sale or making any down payments.

Interest Rate

Portability is normally reserved for fixed-rate mortgages, due to their stability. If you have a variable interest rate, your odds at porting your arrangement are much slimmer in comparison.

Luckily, most variable rates can be converted into fixed terms and then ported if necessary. In any case, a mortgage porting calculator might provide useful insight into the possible rates and conditions of your transferred deal so that you know what to expect.

Your New Home’s Purchase Price

If the inherent value of your new home differs from that of your previous one, you’ll need to make some adjustments. This means that you’ll have to negotiate the new arrangement with your lender and agree on a blended rate.

Finishing Thoughts

At the end of the day, porting a mortgage is an inexpensive alternative to breaking your current deal and paying an exit or penalty fee, all while trying to sort out your living situation. 

With that said, the process comes with its own challenges and requirements that not everyone can meet. It’s absolutely crucial that you consider your financial situation before you make any transactions to ensure that it’s the right decision for you.