A Portability Option in Your Mortgage: What is it and is it important?
By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, October 1, 2022
Selling your current home and moving into a new one can be stressful enough, let alone worrying about your current mortgage and whether you are able to carry it over to your new residence.
Porting — or transferring — your mortgage enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. And, better yet, a portability option also allows you to increase your mortgage amount without paying a penalty. It’s important to note, however, that not all mortgages are portable.
When it comes to fixed-rate mortgages, you usually have a portability option. If you require additional funds, there are two ways lenders can do this.
Some lenders will do a blend and extend
This means they will look at the interest rate you currently have and compare it to the rate that is currently available and then blend both rates. That will be the interest rate you will have for the new term. The amortization period might increase or remain the same.
Other lenders and most banks
Your current mortgage will remain in place and the additional amount you require will be given to you with another mortgage that has the current interest rate, a new amortization period and a new maturity date. The challenge with this method is that you will have two different mortgages renewing at different times and with different amortization periods. If you ever decide to move your mortgage to a new lender, you will have to pay a penalty regardless, as the two mortgages will be renewed at different times. It is always best to explore all your options with a mortgage expert.
If you have a variable-rate mortgage, porting is usually not available. As such, when you break your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage.
While porting typically ensures you will not be charged a penalty when you sell your existing property and buy a new one, some conditions may apply.
Some lenders allow you to port your mortgage, but only if the sale of your old home and the purchase of a new home happen on the same day. Other lenders offer a week to do this, some a month, and others up to three months.
Some lenders don’t allow a changed term or force you into a longer term as part of agreeing to port your mortgage.
Some lenders will, in fact, reimburse your entire penalty whether you’re a fixed or variable borrower if you simply get a new mortgage with the same lender – replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand-new term of your choice and start fresh.
There are instances where it’s better to pay a penalty at the time of selling and get into a new term at a brand-new rate that could have you saving back your penalty over the course of the new term.