Porting a Mortgage

Porting a mortgage refers to transferring a mortgage—along with your current rates and amortization period—from one property to another. Unlike refinancing, porting doesn’t require you to break your mortgage, which would incur prepayment penalties as high as three months of principal plus interest. Porting is especially useful when your fixed mortgage rate is lower than the rates currently being offered by lenders. These benefits aside, mortgage rules are complex, so homeowners need to understand the basics upfront in order to make wise decisions.

Fixed vs. Variable

Lenders generally offer portability on fixed rate mortgages, but some will also offer it on variable rate products. This makes sense considering that lenders want to retain their customers rather than have them shop around at different lenders. Porting can also reduce the load of documentation for both the institution and the client. 

Mortgage contract

Not all mortgages can be ported. When choosing a product, ask about portability, because, once the documents are signed, it may be too late to add the feature. Also ask about the fees involved in porting as these can vary by lender.

Timing

Mortgages usually need to be ported within 30 to 90 days, or, less often, 120 days. That means you have a limited timeframe within which to sell your current property and purchase a new one. Often when homeowners are looking to purchase a new property, they will make a conditional offer, but in hot markets, sellers may be less willing to accept conditions.

Increase to the mortgage

It is possible to move up to a more expensive property as you port your mortgage. Lenders generally will accommodate this by offering a ‘blend and extend’ mortgage. For example, if you have a $200,000 mortgage at a 2.10% fixed rate, but you need another $50,000 at current rates (e.g. $2.55%), the lender will calculate at rate between 2.10% and 2.55%. 

Before selling your current home to purchase a new one, consider some challenges to porting your mortgage:

• Income changes: If your household income has fallen since you purchased your current home, a lender may refuse to port a mortgage. In an ideal world, even if income has fallen, the lender would consider how much has already been paid down on the current mortgage, payment history and credit scores.
   
• Stress test changes: To ensure that homeowners have enough resources to weather the stormy seas of another economic recession, the government and lenders implemented stress tests that apply to new mortgages (and typically to ported mortgages). 

• Self-employed: If you became self-employed, most lenders require two years of tax assessments to prove sufficient income.

• New community with a new employer: If you are moving to a new community, it will not be possible to have passed a 3 or 6-month probation period with a new employer within the timeframe to port most mortgages. Some lenders will be sticklers for the probation period, while others will look at your track record as a client along with a letter from your new employer stating that your job will be permanent. 

• Lending area: Some lenders have very restrictive lending areas. For example, if you are moving to a different province, credit unions may not be able to offer portability. 

• High debt ratios: Have you taken a dream vacation, purchased a boat, or decided to complete your MBA online? These large ticket items will likely affect your debt to income ratio and, if it is too high, your lender may decline to port your mortgage.

• Leasehold land: Some lenders simply do not offer mortgages on leasehold land, which refers to land owned by someone else (e.g., an individual, a company, or a native band), so porting to a leasehold property may not be possible.   

• Change to maturity date: When you port, your lender may require you to start a new term that locks you into a rate for a certain number of years. For example, if you are in your third year of a 5-year term, the lender may require you to start a new 5-year term. This may or may not be to your benefit.

The Canadian government and most lenders offer online calculators to help people analyze mortgage payments and interest charges. Crunching the numbers can help you determine if porting makes financial sense, or if it is more beneficial to end a mortgage and pay the penalties than refinance. 

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