Mortgage Basics

Pros and Cons of Porting a Mortgage

Pros and Cons of Porting a Mortgage
Written by
  • Ashley Howard
| 1 May 2024
Reviewed, 1 May 2024

Table of contents

    If you need to relocate before your current mortgage term ends, you may need to consider breaking your mortgage. However, breaking your mortgage could come with hefty fees, so another option you may have is to port your mortgage instead. Porting your mortgage to your new property can save on the costs of breaking your mortgage term early and getting a new one.

    Porting allows you to retain your current mortgage, along with its terms and interest rate, and transfer it to a different property without incurring the penalty required if you were to break your current mortgage. This article will discuss the advantages and disadvantages of porting a mortgage and when it may be wise to incorporate this option into your mortgage plan.

    Key Takeaways

    • Porting involves transferring your mortgage to a different property while retaining the existing rate and terms.
    • The porting process can be beneficial for avoiding penalties for prepaying a mortgage that would typically occur when the mortgage term is broken.
    • It is important to note that not all mortgages can be ported, and some may only be portable to certain types of properties or locations.

    Understanding the Process of Porting a Mortgage

    If you are currently in a mortgage term and are selling your current home while also purchasing a new one, it may be possible to transfer your mortgage balance to a new property through porting. This allows you to avoid breaking the mortgage during the term and paying a hefty penalty.

    When you port your mortgage, you are moving your entire current mortgage, including the interest rate, remaining term, amortization, terms and conditions, and mortgage balance, to a new property without incurring the penalties you would if you were to break your mortgage.

    If your new home requires a greater mortgage amount, you may have the option to do a blend and increase. This alternative calculates a weighted average between your current and new interest rates, resulting in a rate that falls somewhere in the middle. If interest rates have risen since your previous term, this can potentially save you money on interest-carrying costs.

    Steps to Calculate Porting a Mortgage

    Assume that you have completed 2 years of a 5-year mortgage term and still owe $200,000 with an interest rate of 2.64%. Let’s consider a scenario where you wish to buy a new property that requires a mortgage of $500,000 while the current interest rates are 5.24%.

    If you require an extra $300,000, your mortgage provider may permit you to blend and increase the amount while porting your mortgage. This would result in a blended interest rate of approximately 3.94%, and your mortgage term would reset back to 5 years. One potential consequence of this is that it may lead to an increase in the overall cost of the mortgage for the new home. 

    Alternatively, consider setting up a hybrid mortgage if your lender offers one. This approach involves having two mortgages on the same property. The first mortgage of $200,000 will remain at 2.64% for the remaining two years, while the second mortgage of $300,000 can have a term of 2, 3, 4, or 5 years, depending on your savings and the options available from your lender or the insurability of the property.

    If your previous mortgage was insured, but the new property is being purchased with a downpayment of over 20%, the new mortgage may not be insured or eligible for insurance. As a result, the interest rate from the previous mortgage may not apply to the new property.

    Your lender may not provide hybrid mortgages or collateral charge registrations. If this is the case, you will need to determine if paying the prepayment charge is the best choice. Afterwards, you can discharge the previous mortgage and search for a better interest rate.

    Benefits of Porting Your Mortgage

    No Prepayment Penalties: Porting or a mortgage avoids penalties for breaking and paying off your mortgage early.

    Competitive Interest Rates: By porting your mortgage, you can maintain a lower interest rate from your existing mortgage or combine it with a new rate when you transfer your mortgage to a new property. This can be especially beneficial if current mortgage rates are higher than your current rate. The new rate will consider the new and old mortgage rates, terms, principal balances, and amortizations, making the calculation more complex than porting with a hybrid mortgage option.

    Save Money: Porting a mortgage can also result in cost savings. By avoiding prepayment penalties or higher interest rates if rates have risen since the start of your term, you can save a significant amount of money over the term. Additionally, if rates have increased, the penalty for your fixed mortgage would be lower compared to if rates had decreased.

    Disadvantages of Porting Your Mortgage

    Lack of Flexibility: Porting a mortgage involves the simultaneous sale of your current home and the purchase of a new one, which can be a disadvantage if you are unable to find a suitable new property within the given time frame of 30 to 120 days, depending on the lender.

    Unable to Get a Lower Rate: If mortgage rates have decreased since you took out your mortgage, porting may prevent you from taking advantage of lower rates. Breaking your mortgage may be more cost-effective if current rates are significantly lower.

    Mortgage Amount Limitations: The total amount that can be transferred when porting a mortgage may be restricted. If the new property is valued at $1 million or more and you have an insured or insurable mortgage, porting the mortgage may not be possible. In this case, alternative financing options or breaking your mortgage should be considered.

    Limited Lenders: Not all lenders offer the option to transfer a mortgage to a new property, and those that do may have specific requirements or limitations. Most lenders do not allow porting for variable or adjustable mortgage rates. However, paying the 3-month interest penalty may be worthwhile in finding a more competitive rate with a different lender.

    Additional Costs: While porting a mortgage can help avoid prepayment penalties for breaking the term, additional costs and fees may still depend on the lender and mortgage terms. If porting requires additional funds, higher payments with a reduced amortization may be made if the old mortgage has been significantly paid down.

    CMHC Top-Up Fees: If you port an insured mortgage to a new property and need to insure the mortgage according to the lender’s guidelines, you must pay the CMHC Top-up Premium. Sometimes, the cost of default insurance top-up premiums can be higher than insuring the new mortgage. 

    Is it Beneficial to Port a Mortgage?

    It is worth considering porting your mortgage if you are already in the middle of your mortgage term. This option can help you avoid the expensive fees associated with breaking your mortgage, which would be necessary if you choose not to port the mortgage.

    By porting your mortgage, you may be able to keep a competitive interest rate, especially if your current rate is lower than the current market rates. If you require a blend and increase option, where you can add more funds to your existing mortgage balance or extend the term of your mortgage, this strategy can still help you secure a better rate unless rates have fallen.

    Is it Possible to Port All Mortgages?

    Not all mortgages are portable. The availability of this option varies depending on the lender and the specific terms outlined in your mortgage. To determine if porting is possible and understand the procedure for your mortgage, consult your lender and carefully review the terms and conditions of your mortgage.

    Mortgages that are restricted and variable mortgages are typically not portable. The property you are moving to must also meet the criteria set by your lender. Moreover, if you are moving to a different province, porting your mortgage may only be possible if your lender has operations there.

    Frequently Asked Questions

    What happens if the new home is more than my current mortgage?

    Porting a mortgage to a home that requires a larger mortgage than you currently have will mean you need to borrow additional funds to cover the difference. This could affect your mortgage rate since you may need to blend and increase. This blended rate will apply to the total mortgage amount once ported and will be a weighted average of your interest rate and current rates.

    What happens if the new home is less than my current mortgage?

    Porting your mortgage to a home that requires less mortgage than what you currently owe may mean you have to pay a prepayment penalty on the amount not needed for the new home.

    Will there be a penalty for porting my mortgage?

    While there is no penalty for porting a mortgage, you may need to pay some costs that vary depending on the lender. Some of the costs could include fees like administrative, appraisal, legal or mortgage default insurance top up premiums. 

    Final Thoughts

    If you are in the middle of your mortgage term and need to move to a different property, porting your mortgage can be helpful. It can prevent you from incurring penalties for breaking your mortgage early and allow you to maintain a lower interest rate, even if rates have risen since the start of your term.

    Before deciding whether to port your mortgage, it is important to consider all factors, such as the possibility of porting, comparing your interest rate to current rates, and the penalties for breaking the mortgage. It is crucial to consult with your lender or a mortgage expert to determine if porting is a viable option and if it will be more cost-effective than breaking the mortgage.