Porting Your Mortgage: How It Works and When to Do It

Thinking of moving to another house, but you already have a mortgage plan with great rates? Well, there is an option, and it’s called porting your mortgage. But is it the right move? Are there certain qualifications you need to have? We will be answering these questions and much more in detail in this post. Stay tuned!

How Does Porting a Mortgage Work?

When you want to buy a new house and do not have the entire money at hand, like most people, you will need a mortgage on that house, but what if you have already taken a mortgage for your current house and you are still in the process of paying it off? In a situation like this, there’s an option called transferring a mortgage.

Transferring a mortgage from one house to another means that you will be able to use the remaining amount of your current mortgage to buy the new house, and you will keep paying off the old mortgage with either the same old rate or a new blended rate, and also keep the same lender and all the mortgage terms you agreed on.

Pros and Cons of Porting Your Mortgage

There are some reasons for and against porting a mortgage in Canada:

Reasons For

• Avoid Any Penalties: When you decide to start a new mortgage and end the previous one you took out early on, you usually need to pay penalty fees in order for the lender to close your mortgage agreement. But when you port your mortgage, you can basically avoid those fees because you haven’t broken your mortgage agreements.
  
  
• Keeping Your Rates: If you had a good interest rate on your previous mortgage, you can keep it when porting.
  
  
• Simpler Process: It is easier to port your mortgage than to find and deal with an entirely new mortgage plan and possibly a new lender.
  
  Remember, if you want a new mortgage, you need to go through the entire process of finding a lender that offers an appropriate loan and also be qualified again to take that loan. By porting, it’s the same lender you’ve got to deal with and the same mortgage agreements, terms, rates, etc.
  
  
• A Bigger Loan: If you want a bigger loan amount, you can sometimes blend and extend, meaning that your lender will blend your current rate with the new rate and extends your loan amount.

Reasons Against

• Not Always An Option: You should know that not all lenders allow porting your mortgage, or sometimes your mortgage terms allow only porting to a specific type of property, for instance, residential properties, and not commercial or industrial ones.
  
  
• Same Lender: By porting your mortgage, you have to stick with the same lender, and that might be something you might want to reconsider, since there might be better mortgage deals out there.
  
  
• Time Pressure: It might be the case with your mortgage terms or your lender’s conditions that in order to port your mortgage, you need to wrap up the whole process of selling your current house and buying the new one within a short period of time, typically between 30 and 90 days.
  
  
• Lower Rates to Be Found: It rarely happens, but sometimes the interest rates on house loans might drop a bit, and you might be better off breaking your current mortgage deal, paying the penalties, and looking for a new deal with lower rates and better overall terms.
  
  
• Blended Rate Maybe Too High: If you want an increase on your mortgage amount, the lender will blend your current rate with the new market rates (which are usually higher) and give you an average new rate, and then give you an increase on your loan amount.
  
  Sometimes the blended rate might not be your best option, and you might want to take out a whole new mortgage.
  
  
• The Need for Approval, Again: Even if you have been keeping a good credit and paying off your mortgage regularly, not missing a payment, the lender will still have to assess the new property and your latest financial status in order to requalify you for the mortgage port.

If you haven’t found a good house loan yet, Mortgage Broker vs. Bank is a good article to find out all the details you must know when picking between a broker and a bank.

Scenarios Where Porting Makes Sense

Let’s see in what circumstances porting a mortgage is indeed in your best interest:

1. Great existing interest rate

If the interest rate on your current mortgage is very good and you previously spent a long time looking for that deal, then porting makes absolute sense.

2. The penalty would be too considerable

If you're going to have to pay in order to get out of your current mortgage deal, and the number is a little too high for comfort, then mortgage transfer might be a better option compared to taking out an entirely new loan with a new lender.

3. Similar or higher value property

If the house you want to buy is of similar value to your mortgage balance, then looking for a new loan is probably a waste of time, and porting makes the most sense. Porting a mortgage to a higher value property also makes sense since you can make use of the blend and extend option we talked about earlier.

Porting a mortgage to a cheaper house is typically not a good idea, because, in summary, lenders might not allow it since the loan amount is going to be smaller and their profit is going to be affected, you might have to prepay the difference between the lower loan amount and the previous agreed-upon loan amount, and lastly the porting process is going to get complicated, and no one likes complicated.

4. New mortgage, new troubles: Compared to porting, there’s going to be much more paperwork if you decide to take on a new loan. Especially if your credit has somehow dropped and requalifying for a new mortgage is going to be a hassle, requalifying for a mortgage transfer is going to be easier.
   
   
5. You have no problem with the time pressure: If you know you are going to move into the new house within the specified time frame (1-3 months) and sell your current property within that period as well, then porting makes sense.

How to Port Your Mortgage

Let’s do a step-by-step guide on how to port a mortgage:

1. First, read the mortgage agreement or ask your lender to see if porting is an option or not. Not all mortgages are transferable.
   
   
2. Before listing your current house for sale, let your lender know about the porting, because there will probably be conditions you have to meet in order to port your mortgage, like a specific timeframe, specific types of property you can move to if you want to keep your mortgage, etc.
   
   
3. Get reapproved for the new house and the porting. The lender will once again assess your financial situation (credit, income, debts, etc), and the new property’s value to see if it fits the criteria.
   
   
4. When the porting is possible and approved by your lender, now decide whether you need extra cash from the mortgage or not.
   
   If yes, then make use of the blend and extend option or, alternatively, take out a second loan. Or see if you will need less money for the new house, in that case, the lender will have to decrease the mortgage amount, and that comes with its own conditions.
   
   
5. Sell your current house and buy the new one. When your current property is sold and you also close the deal on the new property, the mortgage will be transferred. Your lender or mortgage broker will do the paperwork.

Requirements and Documents

Here are the requirements for porting a mortgage in Canada:

• Your current mortgage must be portable
• The property you want to purchase must meet your lender’s requirements
• You must be financially requalified by your lender
• You need to sell the current house and buy the new one within the lender’s specified time frame
• According to Canada's national housing agency, in this document, mortgage loan insurance CMHC portability, the maximum purchasing price must be below $1 million
• Also, CHMC says that your credit score needs to be 680 or above, and you need to be located in Canada with year-round access.

And these are all the documents you will need to provide in order to port your mortgage:

• Identification
• Proof of income (recent pay stubs of the last 2 or 3 years, tax returns, bank statements)
• Employment letter confirming your job and salary
• Notice of Assessment
• Current mortgage agreement
• Purchase agreement for the new property
• New property details
• Sale documents for your existing home
• Appraisal report
• Proof of additional assets (investments, savings)
• List of liabilities (loans, credit cards, car payments)

FAQ

1. Can you port a mortgage to another lender?

No, you can not port your mortgage to another lender because your lender will not allow that. Porting is only possible when you agree to stay with the same lender. If you want to switch lenders, you will need to break the current mortgage, pay the fees, and find a new mortgage with a new lender.

2. What happens if your new home is more expensive?

If your new home is more expensive than the current one and you do not have the extra cash for the new house, you need to extend your loan amount if possible, and your lender will blend your current mortgage rate with new market rates and give you a rise on the loan amount.

3. Is mortgage porting available in Canada?

Yes, it is, but not all lenders in Canada will allow porting. The ones that do will tell you that there are certain criteria you need to meet in order to port, such as a financial requalification for the new property.

The Bottom Line

Porting your mortgage comes with its own merits and downsides. Whether you should go for it or simply end your mortgage agreement and look for a new one depends on several factors we discussed in detail in this post. Before making a decision and moving to your new house, make sure you are familiar with the different aspects and policies of the porting process and the penalties that come with breaking your mortgage.