Over 40% of Canadians under 35 own their own home. Canada has one of the highest homeownership rates in the world.
The recent boom in the housing market has caused these numbers to increase even further. Despite lower interest rates, not all residents can afford their new homes. Mortgage debt in Canada reached a record high of $108 billion in 2020 compared to $46 billion in 2018.
Is there a way to transfer your current mortgage onto a new home and keep your current rates? There is, and it's called porting a mortgage.
This financial strategy can save you money when you're selling a home and looking for a new one. Read our guide to learn how to port a mortgage and when you should do it.
How Does Porting A Mortgage Work?
Most homeowners go towards the simplest option when financing a new home and get an entirely new mortgage for it. This can be a useful strategy, but it's important to know about all of your alternatives.
What is porting a mortgage? The concept itself is simple, but the process can be somewhat complex.
Porting a mortgage moves your existing mortgage to a new property when you're selling a home and buying a new one. It allows you to retain the same interest rate. You'll also avoid pre-payment penalties on the sale of your home.
The process of porting is similar to reapplying for a new mortgage. You'll start by ensuring you have a portable mortgage and finding out what fees and early repayment charges may apply. See if your lender can offer you a better deal and find out in advance what information they'll need for affordability checks.
Next, compare your options to decide if porting a mortgage is the best option for you. If it is, reapply with your original lender. You'll have to pass affordability checks again and may have to pay a mortgage valuation fee of approximately $588.70.
If you pass the checks and pay the fees, you'll get a new offer with the same terms as your old one. Once you sell your current property, its mortgage will be repaid and moved to your new property.
There are several factors to keep in mind before completing the mortgage porting process. Consider whether or not you're eligible and whether the change will benefit you financially.
Can I Port My Mortgage?
The current housing market may involve rapid buying and selling, but this doesn't necessarily mean that the number of ported mortgages is increasing. Not every buyer is eligible for or can benefit from transferring their mortgage to a new home.
Your ability to port your mortgage will depend on your creditworthiness and several other factors. These include the details and interest rate of your original contract and the value of your new home.
Mortgage Contract
There is one important detail to consider before attempting to port your mortgage. You must check to ensure that you have a portable mortgage.
If you're comfortable with your current lender, you may want to port your mortgage with them. They'll ensure you get the same rates and terms. If you want to move on to a new lender, read their new offer carefully.
When you port your mortgage, you must apply in much the same way as you did for your first home. If your employment status or credit history has changed, you may be denied. Check your credit score first to avoid this.
Home Value
Knowing the value of your new home in advance is important if you're planning on porting your mortgage. Get it appraised as soon as possible to ensure you meet eligibility requirements.
The value of your new home must be equal to or lesser than your current home. Many lenders also won't port your mortgage to a self-managed building, former grow-ops, leasehold, or other restricted property.
It's also possible to calculate how much your ported mortgage will cost. If you're porting your mortgage to a cheaper home, take any fees and multiply them by the difference between your previous and new borrowing amount.
If want to purchase a more valuable home, you may have to look for an alternative route. Most lenders won't allow you to port your previous mortgage onto the pricier home, and you may have to refinance for a higher premium instead.
Type of Interest
When you apply for a mortgage, you're assigned an interest rate that adds to your premiums. There are two types: variable and fixed rates.
A variable rate changes over time. This makes it less likely for your port mortgage application to be accepted because lenders view it as a high-risk investment. The housing market is too volatile to work with such changeable rates.
You may be accepted if you have or switch to a fixed-rate mortgage. The disadvantage to this is that they have higher rates and pre-payment penalties.
Knowing the basics of how to port a mortgage helps you decide if it's the right move for your financial future. Consider every aspect, including your rates and possible repayment charges.
Is It A Good Idea to Port A Mortgage?
Rushing out to port your mortgage the moment your house sells can be a grave financial mistake. Even if you meet all the requirements, you must consider if you'll benefit financially from the process.
Porting a mortgage is useful if you're selling a home and plan to buy a new one soon. It helps you avoid repayment charges and maintain a favourable interest rate.
Many lenders charge extra fees if you apply for a mortgage on a new home before selling the one you currently live in. Porting a mortgage helps you avoid this by transferring your current mortgage onto the new property.
Canadian home interest rates, like those in much of the world, are currently at historic lows. You may not be able to get an affordable mortgage if you apply years later. Instead, port your mortgage so you can enjoy today's low rates.
If none of these advantages apply to you, consider another option. Finding the right one for you is one of the most important financial decisions you can make when buying and financing a new home.
Alternatives to Porting A Mortgage
Porting makes sense if you're selling your home and buying a new one. It could be the right choice if you want to either avoid early repayment charges or keep a favourable interest rate from your original mortgage. You may want to get a new mortgage instead if doing so will save you money in the long run.
There are other alternatives as well. A process such as transferring your mortgage to the buyer of your original home or refinancing to create a blended mortgage may be the best option for you.
Transfer of Mortgage
A transfer of mortgage allows you to put the responsibility for the rest of what you owe onto the new homebuyer who purchases your home.
You must get permission from the buyer, but this isn't difficult because they'll be the new owner of the home. It may also allow them to take advantage of low interest rates and avoid closing costs.
Not all mortgage lenders allow for transfers but, if yours does, it can benefit you as well. There are also conditions in mortgage transferring that may require you to look into another alternative if you can't meet them. The buyer you're transferring your mortgage to must also be able to pass income and credit checks.
Blended Mortgage
If you don't meet the requirements for porting a mortgage, you may have to consider a blended mortgage. It combines your previous rate with a new one.
The new rate is more expensive than the original but less than a brand new mortgage. It may be the most economical alternative if you can't get a portable mortgage.
You can get a blended rate for corporate debt or personal loans like a mortgage. It's a more flexible option which makes it a valuable alternative.
Look at your current mortgage before choosing a portable mortgage. Check to see if you're eligible and how much you can save by making the change. The final step is to find the best possible lender to get the lowest rates.
Where to Get A Mortgage
Porting a mortgage is a useful tool for those who are selling a home while attempting to buy a new one. It allows you to transfer your current interest rate and terms to the new home.
If you pass credit checks, have the right type of mortgage, and choose a new home with the right amount of value, you may be approved to be ported. If not, you may have to consider alternatives such as a new, transferred, or blended mortgage.
