Mortgage Basics

All You Need to Know About Mortgage Portability in Canada

All You Need to Know About Mortgage Portability in Canada
Written by
  • Ashley Howard
| 31 August 2023
Reviewed, 18 September 2023
Share:

Table of contents

    Purchasing a new home is exciting but can come with its fair share of challenges. One of the biggest concerns for existing homeowners looking to make the move is how to handle their existing mortgage in the process. 

    Breaking a mortgage can result in hefty prepayment penalties, which is why mortgage portability is a popular option for many Canadians. This comprehensive guide will explore mortgage portability, how it works, and when it may be the right choice for you.

    Key Takeaways

    • Mortgage portability allows homeowners to transfer their existing mortgage to a new property. 
    • Alternatives to porting include breaking the existing mortgage and applying for a new one or having the buyer assume your current mortgage. 
    • Mortgage portability may not be available for all mortgages; contact your lender for details on your mortgage porting eligibility, limitations, and conditions.

    Understanding Mortgage Portability

    Mortgage portability enables homeowners to move their existing mortgage from one property to another without incurring full or partial prepayment penalties while remaining with the same lender. It is an attractive option for those who want to sell their current property in the middle of their mortgage term and buy a new one without any major financial setbacks.

    The Benefits of Mortgage Portability

    There are several advantages to choosing mortgage portability. You are likely to avoid prepayment penalties and can either keep or blend your mortgage rates. Portability benefits you when moving to a new home since you can potentially save thousands of dollars by porting your mortgage.

    Avoiding Prepayment Penalties 

    By porting your mortgage, you can bypass the potentially hefty prepayment penalties associated with breaking your mortgage before the term is over. This can save you a significant amount of money, especially if you’re in the middle of your mortgage term.

    Maintaining Favourable Terms 

    If you are porting your mortgage as a straight port, meaning the mortgage balance will remain the same, you will benefit from being able to keep your mortgage rate, remaining amortization and expected maturity of your mortgage term. 

    If you are porting your mortgage where the new mortgage required is larger than your current mortgage, you may be able to blend your current mortgage rate with the current market rate. This will allow you to borrow the additional amount and add it to your mortgage with a rate that falls between your current rate and the current market rate. However, some lenders may require you to pay the market rate on the additional mortgage amount required through a second mortgage component. 

    If you are porting your mortgage where the new mortgage required is less than your current one, your mortgage rate will likely remain the same. Still, you may have to pay a prepayment penalty if the difference between your existing mortgage and the lower amount exceeds your prepayment privileges. 

    Porting your mortgage can be especially beneficial if current mortgage rates are higher than when you initially negotiated your mortgage, as you will end up with a lower combined rate no matter which type of mortgage you have. 

    Note: Blend and extend or transferring are not types of mortgage porting options. Blend and extend involves blending your current mortgage rate and balance with a new rate on a weighted average while staying with the same lender. Transferring a mortgage means keeping the same property but transferring the mortgage to a new lender with new terms and conditions. 

    Is Mortgage Portability Available on All Mortgages?

    While many lenders offer mortgage portability, not all mortgages are eligible, and there is no guarantee that you can port your mortgage even if the option is there.  Generally, most fixed-rate mortgages can be ported with a few exceptions. 

    First, you will always have to re-qualify when porting your mortgage as the collateral which the mortgage will be secured against will be different. If you don’t qualify for the new amount, you won’t be able to port your mortgage. Additionally, the lending or regulating guidelines could have changed since you qualified on your old mortgage.

    If your new home purchase is over $1 million and you currently have an insured mortgage (meaning you put down less than 20% as a downpayment and purchased mortgage default insurance), you will be unable to port your mortgage.  

    Variable-rate mortgages are typically not eligible for porting if you require a higher mortgage amount. If you are currently in a variable-rate mortgage and wish to port it, you may need to pay the prepayment penalty, and then you will have the option to choose a new variable or a fixed-rate mortgage.

    To determine if your mortgage is portable, review the details of your current mortgage before putting your home on the market. It’s recommended to reach out to your lender to understand their specific guidelines associated with your mortgage and portability.

    Note: Mortgage porting (transferring a mortgage between different properties) or transferring a mortgage (transferring a mortgage between different lenders) will always require you to re-qualify. Blending and extending is an early renewal with your lender on the same property; therefore, it doesn’t require re-qualification.

    The Process of Mortgage Portability

    To successfully port your mortgage, you must follow several steps. Let’s take a closer look at the process involved in mortgage portability.

    Step 1: Contact Your Mortgage Lender 

    The first step is to contact your lender before you sell your current home and purchase a new one. This way, you will understand the terms and conditions for your existing mortgage and what restrictions you may have around porting. Your lender will guide you through the porting process and provide you with the necessary information and any documents required to get started with the process.

    Step 2: Assess Your Mortgage Portability Options

    During your discussion with your lender or broker, they will assess your mortgage portability options based on your current mortgage terms, the value of your existing home, your financial situation, and the purchase price of your future home. They will determine if your mortgage is portable and if there are any restrictions or conditions that may affect the porting process.

    Step 3: Apply for a New Mortgage

    Once you have found your new home, you must apply and qualify. Your lender will review your financial situation, including your income, credit score, and debt-to-income ratio, to determine your eligibility for a new mortgage. Once you have qualified on these factors, the lender will assess the value and risks associated with the subject property.

    Step 4: Sell Your Current Home and Purchase a New One

    After completing the necessary paperwork and securing your new mortgage, you can sell your current home and purchase your new one. The proceeds from the sale of your current home will be used to pay off the remaining balance on your existing mortgage.

    Step 5: Complete the Mortgage Portability Agreement

    Once your new mortgage is approved, you will need to complete a mortgage portability agreement. This agreement will outline the terms and conditions of porting your mortgage and transferring it to the new property. Your new mortgage agreement can simply be the carryover of your remaining mortgage term and amortization. It is essential to carefully review and understand this agreement before signing.

    Step 6: Transfer Your Mortgage

    Once the sale of your current home is finalized and you are ready to close on your new home, your lender’s mortgage department will arrange to transfer your mortgage. The process will involve paying out your current mortgage with the certified funds received from the buyer’s real estate lawyer and completed funding advice from your solicitor. Your lender will coordinate with your legal professionals involved in the transaction to port your mortgage to the new property.

    Step 7: Adjustments and Finalization

    Adjustments may be made during the mortgage porting process to account for any mortgage amount or interest rate changes. Once all the necessary adjustments are made, your new mortgage will be finalized and officially ported to your new home.

    Factors to Consider Before Porting Your Mortgage

    While mortgage portability can be an excellent option for many homeowners, there are several factors to consider before deciding whether it is the right choice for you.

    Mortgage Rates

    Before porting your mortgage, compare the interest rates your current lender offers with those available from other lenders. While porting your mortgage may allow you to retain your current rate or blend for a better rate than current rates, more competitive rates may be available in the market that could save you money in the long run.

    Mortgage Terms and Conditions

    Review the terms and conditions of your current mortgage to ensure that they align with your long-term financial goals. Consider factors such as prepayment options, penalties, and the flexibility to make changes to your mortgage.

    Property Value

    If you plan to purchase a new home at a significantly higher price than your current home, your existing mortgage may not be sufficient to cover the purchase. In such cases, you may need to qualify for additional financing at current rates or consider other mortgage options.

    Mortgage Portability Restrictions

    While most fixed-rate mortgages can be ported, there may be restrictions or limitations. With mortgage portability, depending on the lender, you may have only 30-90 days to port your mortgage to the new property before you are required to pay the prepayment penalty (e.g. if your new home doesn’t close on time). 

    Future Relocation Plans

    Consider your future relocation plans before opting for mortgage portability. If you anticipate frequent moves or plan to move between provinces (interprovincial), porting your mortgage may not be the most suitable option. In such cases, exploring other mortgage solutions or discussing your options with a mortgage expert may be more beneficial. 

    Passing the Stress Test

    If you were originally qualified for your mortgage before October 2016, then it may be possible for you to avoid the stress test on the mortgage amount being ported. However, this may not always work best for your cash flow as the ported amount will have a lower amortization with a higher mortgage payment and carrying cost.

    Alternatives to Mortgage Portability

    Alternative options exist if mortgage portability does not meet your needs or preferences. You can break your current mortgage and apply for a new one, or there may be the option to have the buyer assume your existing mortgage.

    Breaking Your Mortgage

    Breaking your current mortgage contract and applying for a new one is an alternative to portability. However, this option will likely come with prepayment penalties, and you will need to go through the application process again. This means you will need to be approved for a new mortgage and secure a new interest rate

    Assumable Mortgages

    In some cases, the buyer of your current home may be interested in assuming your mortgage. This option allows the buyer to take over your existing mortgage, potentially at a lower interest rate. However, assuming a mortgage typically requires approval from your lender and may come with certain conditions or liabilities for both parties involved.

    Frequently Asked Questions

    What is mortgage portability?

    Mortgage portability allows you to transfer your current mortgage rate and contract to a new property when purchasing a new home and selling your existing one within a 30 to 90-day period.

    How does porting a mortgage work?

    Porting a mortgage involves carrying your existing mortgage to a new property and avoiding any associated prepayment penalties, which can be a cost-effective alternative to breaking your mortgage.

    What are the benefits of mortgage portability? 

    Porting your mortgage lets you maintain your previous interest rate or blend with a new rate, potentially saving money on your new mortgage. It also allows you to avoid significant prepayment penalties associated with terminating a mortgage before the term is over.

    What factors determine eligibility for mortgage portability?

    Eligibility for porting a mortgage depends on various factors such as income, employment status, debt servicing capacity, credit score, and current mortgage terms.

    What challenges may arise when porting a mortgage?

    Some challenges you may encounter when porting a mortgage include a short closing time, the need to qualify for a larger mortgage if purchasing a new property with a higher price, and potential limitations or restrictions for porting set by the lender. The biggest challenge facing borrowers porting a mortgage is their paid-down amortization, which they will have to keep intact on their new property for the porting to be approved.

    Final Thoughts

    Mortgage portability is a valuable option for homeowners looking to move and want to avoid the financial implications of breaking their existing mortgage. Porting allows you to maintain your current mortgage terms and avoid costly prepayment penalties. Porting your mortgage provides you with flexibility and convenience during the homebuying process. If you’re in the market to upsize or downsize from your existing home, porting may be a great option to realize cost savings as mortgage rates continue to rise.