Don’t Leave Your Mortgage Behind – All Things Porting A Mortgage

In the dynamic landscape of real estate, homeowners often find themselves needing to relocate before their mortgage term concludes. In such scenarios, porting your mortgage can be a financially savvy strategy. This process allows you to transfer your existing mortgage—along with its current interest rate and terms—to a new property, potentially saving you from prepayment penalties and securing favorable loan conditions.

Understanding Mortgage Porting

Porting a mortgage involves moving your current mortgage agreement to a new home. This means retaining your existing interest rate, loan balance, and remaining term. It’s particularly advantageous if your current mortgage rate is lower than the prevailing market rates, as it enables you to maintain that lower rate for your new property. Additionally, porting can help you avoid the prepayment penalties that typically accompany breaking a mortgage contract prematurely.

Eligibility Criteria

Not all mortgages are portable. Generally, fixed-rate mortgages offer porting options, while variable-rate mortgages may not. It’s essential to review your mortgage agreement or consult with your lender to confirm if porting is permissible. Moreover, lenders usually require the sale of your current home and the purchase of a new one to occur simultaneously, often within a specific timeframe ranging from 30 to 120 days. This necessitates careful planning and coordination to meet the stipulated deadlines.

Porting Scenarios: Upsizing or Downsizing

When porting your mortgage, the value of your new home relative to your current one plays a crucial role:

•Purchasing a More Expensive Home (Upsizing): If your new home costs more than your current one, you may need additional financing. In this case, lenders often offer a “blend and extend” option, where your existing mortgage rate is blended with the current market rate for the additional amount. This results in a new, weighted average interest rate and may extend your mortgage term. For example, if you have an existing mortgage of $400,000 at 3% interest and need an additional $100,000 at the current rate of 5%, the lender will blend these rates, providing a new rate that falls between 3% and 5%  .

•Purchasing a Less Expensive Home (Downsizing): If your new home is less expensive, you might not require the full amount of your existing mortgage. While porting, if you choose to pay down a portion of your mortgage beyond the allowable prepayment limit (often up to 20% of the principal), you could incur prepayment penalties. It’s crucial to discuss this with your lender to understand any potential charges and assess whether porting remains beneficial in this scenario  .

Pros and Cons of Porting Your Mortgage

Before deciding to port your mortgage, consider the following advantages and disadvantages:

Pros:

• Retention of Favorable Terms: Maintain your existing interest rate, which is beneficial if it’s lower than current market rates.
• Avoidance of Penalties: Sidestep prepayment penalties associated with breaking your mortgage early.
• Streamlined Process: Continuing with your current lender can simplify the transition, as they already have your financial information on file.

Cons:

• Time Constraints: The requirement to sell your current home and purchase a new one within a limited timeframe can be challenging.
• Requalification Requirements: Lenders may require you to requalify for the mortgage, which involves reassessing your financial situation.
• Potential for Better Offers Elsewhere: Sticking with your current lender might mean missing out on more competitive rates or terms available from other institutions.

Porting your mortgage can be a strategic move, especially in a rising interest rate environment. It allows you to retain favorable loan terms and avoid unnecessary penalties. However, it’s essential to evaluate your specific circumstances, including the value of your new home, current market rates, and your financial situation.

Consulting with a mortgage professional can provide personalized advice, ensuring you make an informed decision that aligns with your financial goals.