Suppose you are committed to a five-year mortgage term with two years left until renewal. However, recent changes in your life, such as a new job offer requiring relocation or the need for more space due to a growing family, necessitate an early exit from your mortgage. While one option involves breaking the mortgage and incurring a pre-penalty fee, there may be an alternative: mortgage porting.
But how does this process work, and is it the right fit for you?
What is Mortgage Porting?
Mortgage porting involves transferring your existing mortgage, including its current interest rate and terms, from one property to another. The key condition is that you must be purchasing a new property at the same time you’re selling the old one. Unlike mortgage refinancing, porting doesn’t require breaking the mortgage and paying pre-payment penalties.
If the mortgage needed for the new property is larger, your lender might offer a “blend and extend.” This involves calculating a weighted average of the existing mortgage and interest rate, along with the new money required, at the current mortgage rate.
Example of Mortgage Porting
For instance, suppose you have a remaining balance of $250,000 on your mortgage, a fixed rate of 1.64% (the best 5-year fixed rate as of September 2021), and are two years into a five-year term. Instead of breaking the mortgage, you can borrow an additional amount from your lender. If the best current mortgage rate you qualify for is 5.29%, the blended rate would be between 1.64% and 5.29%.
When to Consider Mortgage Porting
Mortgage porting makes the most sense when your current mortgage rate is lower than what lenders currently offer. The blended rate will likely be lower than starting a new mortgage from scratch. However, if you qualify for a lower rate than your current one, it may be more advantageous to consider refinancing, taking into account the pre-payment penalty for breaking the mortgage.
Can You Port Any Mortgage?
Not all mortgages are portable, and the ability to port varies among lenders. Some lenders allow mortgage porting, while others do not. Variable-rate mortgages are often not portable. It’s crucial to consult with a mortgage broker to determine which lenders offer this feature.
Restricted mortgages, commonly associated with lower posted rates, may lack portability. Consulting with a mortgage broker can help avoid inadvertently choosing a restricted mortgage.
Having the option to port your mortgage is valuable, even if you don’t anticipate using it. Unforeseen circumstances may arise, making it essential to have this flexibility. If you’re contemplating a move within your current term, especially if your mortgage predates recent rate increases, porting becomes a vital consideration. When buying a new house, thorough research and evaluation of whether to port your current mortgage are essential steps in making an informed decision.