What Does 'Porting a Mortgage' Mean?

Canada’s mortgage market appears to have stabilized. But do not tell that to the typical Canadians, as recent surveys have revealed that there is still plenty of consternation among homeowners and buyers, be it renewing their mortgages or being approved for a home loan.

This is what happens when interest rates rise to their highest levels since before the 2008 financial crisis. Inflation is the highest it has been in 30 years, and the economy is slowing.

The solution, financial experts say, is to look at the many options and tools at your disposal.

And, yes, this includes porting.

Wait a minute. What is porting a mortgage anyway?

Porting a Mortgage: A Primer

Porting a mortgage is the process of transferring an existing mortgage from one property to another. It allows homeowners to keep the terms and interest rate of their mortgage when they sell their current home and buy a new one.

When homeowners port their mortgage, they transfer the outstanding balance of their current mortgage to a new property. This can be useful if the homeowner has a low-interest rate mortgage or wants to avoid penalties for breaking their mortgage term. But it should be noted that not all mortgages are portable. Also, there can be conditions and fees associated with porting.

Porting a mortgage can offer several benefits to homeowners:

• Homeowners can keep their current interest rate by porting. This is especially beneficial if the interest rates have increased since the original mortgage was taken out.
• Most lenders charge a penalty when a mortgage term is broken. Porting allows homeowners to avoid these penalties by transferring their existing mortgage to the new property.
• The process of getting a new mortgage is also much more simplified with porting. Homeowners do not have to go through the entire application process again. This saves time and money.
• Homeowners can also get access to additional funds through porting.

While porting a mortgage can offer some benefits, there are also some disadvantages that homeowners should consider before deciding whether to port their mortgage.

But what would some of these advantages be for homeowners? Here is a brief list:

• Porting a mortgage may limit a homeowner’s options when choosing a new mortgage. They may be limited to the mortgage products their current lender offers, which may not be the most competitive or suitable option for their needs.
• If the new property has a lower value than the previous one, the homeowner may be required to pay a penalty or make up the difference in order to port the mortgage. This can be costly.
• While the interest rate may remain the same, other mortgage terms and conditions may change when porting to a new property. For example, the amortization period, payment frequency, and prepayment privileges may differ. This can affect the overall cost of the mortgage.
• If the homeowner is considering refinancing their mortgage, porting may not be the best option. Refinancing can allow homeowners to access more competitive interest rates and flexible terms, resulting in long-term savings.
• There are also fees associated with porting a mortgage. These include transfer fees, legal fees, and appraisal fees.

The Pros and Cons of Porting a Mortgage

Overall, while porting a mortgage can be a convenient option for homeowners, it is essential for homeowners to carefully weigh the benefits and costs associated with this decision and consider other options, such as refinancing. In addition, some properties are more ideal for porting than others.

For example, if the value of the new property is similar to or lower than the current property, the porting process can be pretty straightforward. Similarly, suppose the current mortgage terms related to interest rate, amortization, and payment are compatible with the new property. In that case, it can be a valuable strategy for homeowners to switch their mortgage from an older property to a newer one.

The decision to port a mortgage also depends on homeowners’ financial situations. They will likely benefit from a similar arrangement if they are financially stable and have been meeting their current mortgage obligations.

At the same time, porting should only be considered a viable option if the new property is more expensive than the current one or if the existing mortgage terms are compatible with the new property. In addition, penalty fees for breaking the current mortgage should be considered, as some lenders may charge a fee even if the homeowner plans to port the mortgage. Finally, if the homeowner can secure a better mortgage rate with a new lender, that borrower may be better off, in the long run, choosing that option instead of porting.

In any case, the homeowner should speak to a mortgage professional or financial consultant before deciding to port their mortgage.

Originally published on the RE/MAX Canada Blog.