Have you ever wondered what happens to your mortgage when you sell your home? Some lenders allow you to port your mortgage loan, which basically means that you can take your current mortgage to your new home. Our expert Alberta mortgage broker team is here to explain how mortgage porting works.
What is Mortgage Porting?
Mortgage porting lets you take the mortgage that you currently have and transfer it to your new home. This means the terms and conditions will carry over as well. It can be a very useful option for those selling their homes and buying a new one, especially if the market's current interest rates are higher than the rates you were given on your existing mortgage.
Some lenders may even allow you to combine your ported mortgage with a new one if the amount of your existing mortgage is less than what you would need for the new home mortgage. There's no penalty for doing this either because you aren't breaking the terms of the original mortgage. However, if your existing mortgage is higher than what you would need for the new home, you may be charged a prepayment fee.
Can Any Mortgage Be Ported?
This can depend on one lender to the next. Most will allow for mortgage porting, but there are some who may not. Also, to port a mortgage, you must be selling your old property and buy a new one. It can also depend on the rate type you have. A fixed-rate mortgage can easily be ported, however, a variable-rate mortgage would need to be converted to a fixed rate. If you need a larger mortgage than your existing one, you will need to go through the qualifying process again, submitting the same documents that you did when you got your first mortgage.
What Are The Pros and Cons?
Pros of Mortgage Porting:
If your existing mortgage has better terms, you can keep them when you port your mortgage.
The monthly fees are lower if interest rates have risen since you took out your existing mortgage.
Transferring your mortgage means there is no penalty because you aren't breaking your terms.
Cons of Mortgage Porting:
You might not get the lowest rate possible if other lenders are offering lower rates than your current lender.
You may only have a short period of between 30 to 120 days to have your mortgage ported, which may not give you the time needed to purchase a new property while selling the old one.
Is Mortgage Porting Worth Doing?
It depends! The pros and cons of mortgage porting change from one borrower to another. For example, if you had $400K left on your existing mortgage with a 2% fixed rate, and the home you are buying is $500K with a current rate of 3%, you would need $100K more. Porting your existing mortgage over and blending this, and extending it with the new mortgage, would give you a rate of interest that falls between 2% and 3%, which is good.
The other option in this scenario is to break the current mortgage term, which means you would be paying a substantial penalty if you have a lot of time left on the mortgage. However, this would let you go to a different lender that has a lower rate.
You can also have the new home buyer take on your existing mortgage. It gives the buyer a lower interest rate and the seller won't have to pay a penalty.
If you want to know if mortgage porting would work for you, give our expert Alberta mortgage broker team a call today to see if this option would benefit you.