The pros and cons of porting your mortgage
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Moving can be a stressful time for anyone. Having to scroll through MLS listings while checking off every box on your checklist to find your perfect new home can be a challenge. However, if you are in the middle of your mortgage term, deciding what to do with your mortgage is yet another decision you’ll need to make – but you have a few options.
Here are some tips for those considering moving with their mortgage.
Can I Move with My Mortgage?
Whether or not you can move your mortgage from one home to another – also referred to as “porting” your mortgage – depends on the terms of your mortgage agreement. Some do not have this flexible feature built in; in this case, your only option may be to break your mortgage. If you are able to port your mortgage, however, that means you’ll be able to move your current agreement, including its existing terms and interest rate, to your new property.
If you know ahead of time that you could be moving at any point during your mortgage term, it’s smart to ensure your mortgage has the ability to port, along with any other conditions it entails. For example, most lenders are only willing to port fixed rate mortgages.
There are a number or benefits to porting your mortgage, though the most common is that borrowers wish to keep any favourable terms they may currently have. Another major benefit is that porting allows you to avoid paying the penalties that can result from breaking your mortgage early.
The length of your mortgage term is also a determining factor when it comes to deciding whether or not to port your mortgage. This is because one of the ways that lenders determine the penalties for breaking your mortgage factors in the amount of time left in your term. Typically, lenders will require borrowers pay either the Interest Rate Differential – the difference between your original mortgage rate and the one available in the current market – or three months’ worth of interest, whichever is higher.
Blending and Extending Your Mortgage
It is important to also give consideration to the current state of your finances. Much like when you first applied for your mortgage, your lender will have to re-assess you in order to figure out what mortgage you qualify for. This assessment extends past just your finances and to the value of the new home that you intend to buy. If the new property that you are looking at costs more than the one that you currently own, you may need to get a larger mortgage. This may require you to “blend and extend” your mortgage.
Blending occurs when lenders let you keep your current mortgage at the current interest rate and add the additional mortgage amount at a different rate, while extending means that they simply lengthen your mortgage term.
When is Porting Not the Best Option?
However, choosing to port your mortgage is not always the best decision. Be sure to be aware of current interest rates as well as any other fees as this can help you determine whether it is cheaper to port your current mortgage or get a new one entirely. Another potential drawback of porting that you should consider ahead of time is the time limit in which lenders give you to sell your home and move into your new one. While the time frame may be adequate in some situations, in some others the time limit imposed can be quite an issue.
Having a time limit to sell and purchase a new home can complicate matters when moving to another city or province, especially if the borrower is changing jobs in the process; any change in employment status can impact your lender’s assessment during the mortgage qualification process. If you’re relocating while remaining at the same company, however, and don’t need to undergo any probationary period, you likely won’t encounter these issues.
Deciding whether or not you want to port your mortgage when you move is highly dependent on your personal finances. While porting may be the best choice for some, choosing to pay the penalties and apply for a new mortgage may work better for others. Check out the CMHC Portability Fact Sheet for some more information on your options.
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