“Porting your mortgage” involves transferring the remainder of your existing mortgage term, outstanding principal balance, and interest rate, to a new property. Portability is not a feature that every mortgage has. It is not always easy or the best option to port a mortgage, but having the option is available is another tool to ensure the lowest possible total cost of borrowing over time.
We discuss in another article specific mortgage options when a sale and a purchase occur at the same time, including the financial mechanics of porting a mortgage. This article discusses the general process of porting a mortgage.
You have to qualify again
Even in cases where the mortgage amount will be lower, all borrowers on an application must qualify again at then-current lending and default insurance guidelines and rates. This is because the collateral for the mortgage - the property - is changing as well. Property carrying costs like heat, property taxes and/or condo fees will change at the same time - and they may increase. The borrowers income may have also changed, affecting the borrower's ability to pay for the property and all of its expenses.
The property you are buying has to be approved
The property you want to purchase has to be approved by the existing lender as well. Over time, lenders may change property guidelines, and the new property must meet the guidelines in place at the time. Because the property itself is the security for the mortgage, it will be reviewed in detail as if it were a brand new mortgage transaction.
Values will likely be different, meaning an increase or decrease to your mortgage amount
Whether the mortgage amount goes up or down, there are points to consider. If the mortgage amount goes down, it has to stay within the allotted prepayment privilege room. If the amount of the mortgage goes up, there are several options for the new higher mortgage amount, including a blended interest rate, an extended term, or a new mortgage.
You still need a down payment
You’re still required to come up with a down payment on the new property. This can come from the money you will make from selling your existing home, if any.
You may still have to pay a penalty
When you sell your house, sometimes the full penalty is taken from the sale proceeds of your property. After the port is completed, it will be refunded back to you. If you are relying on the proceeds of sale to come up with your down payment on the property you are purchasing, you may need to account for this.
Timelines need to line up
It’s rarely a buyers and a sellers market at the same time. So although you may be able to sell your property (or find a new one) overnight, you might not be able to find a suitable property to buy. Alternatively, you might be able to find many suitable properties to purchase while your house sits on the market with no showings. Experienced real estate agents will have dealt with this situation many times and can guide your transaction (involving a buyer on your sale, and a seller on your purchase) to ensure closing dates work for everyone. Occasionally one or both of the parties on the other side of your transactions may not have the will or ability to be flexible with dates, and it may impact your ability to port.
Different mortgages have different port periods
The period of time you have to port your mortgage can range from 1 day to 6 months. If it’s 1 day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. With a longer port period, you just need to ensure your real estate agent is helping you to line up your closing dates in a way that works for you and fits with the requirements of your port clause.