If you’re lucky enough to own a home in a market like Toronto where housing prices have skyrocketed over the past decade, you might be looking to move and cash in on the appreciation. You might be planning to downsize and put the extra money towards retirement, or your financial situation has changed and you can afford to move into your dream home. Either way, a question remains: what happens to your mortgage when you sell?
If you happened to get a mortgage before 2022 when rates were as low as sub 2.00%, you may also be wondering if there’s a way you can hang on to your mortgage terms while moving into your new place. Lucky for you, there is!
Porting a mortgage
Porting your mortgage allows you to transfer your current mortgage with its terms, over to your new home. This is very useful when you’re moving before you’ve paid off your current mortgage, and you want to keep your mortgage terms or avoid paying fees to break your mortgage.
It’s important to note that you won’t always be able to port your mortgage when you move and you’ll need to check with your lender to make sure.
How is porting a mortgage different from refinancing?
When you decide to refinance your mortgage, you’ll need to re-qualify for a new mortgage and will have to pay mortgage penalty fees for breaking your mortgage early. You’ll also have a new set of mortgage terms and your monthly payments may substantially change. Porting your mortgage, on the other hand, doesn’t require you to break your mortgage at all. You simply continue paying your existing mortgage which has been transferred to your new property.
How does it work?
Porting your mortgage is a relatively simple process. First you sell your current home and the money is used towards the purchase of your new home. From there if there’s any amount not covered by the sale, you’ll need to borrow that amount from the lender, or come up with the difference yourself. Your mortgage will then be transferred to the new property and you’ll continue paying as you have before.
Who can port their mortgage?
Whether your lender will port your mortgage is decided on a case by case basis. To know for sure whether you can port your mortgage you’ll need to talk to your mortgage representative.
There are some general conditions for being approved for porting your mortgage however.
First of all, most lenders will only port a fixed rate mortgage. If you’re on a variable rate you will likely be required to change to a fixed rate for your lender to port your mortgage. Another factor to consider is that if your new home is more expensive than your old home, you’ll need to requalify for your mortgage, which means checking your income, debt, and credit history.
What happens if I need a bigger mortgage for my new home?
It’s very common for people who are moving into a bigger place to need a larger loan. This occurs when your existing mortgage and the proceeds from the sale of your current home don’t cover the full cost of the new home. Don’t worry, you can still port your mortgage by doing what’s called a “blend and extend” which means your mortgage terms and payments will change to accommodate the new amount you need. Another way to think of it is you’re porting your mortgage, and then borrowing the remaining amount that you need from your lender at their current rate. On your end, this will all be included in the same mortgage so you’ll only need to worry about one monthly mortgage payment.
When should I port my mortgage?
Deciding when it’s a good idea to port your mortgage over breaking it and getting a new one is pretty simple. If your current mortgage terms are better than the new ones would be, it’s almost always a good idea to port your mortgage. There a few reasons you might still want to switch your mortgage however. Maybe you want to switch to a shorter term if your financial situation is likely to change. Of course your interest rate is the most important factor in switching your mortgage for most people. If the interest rate is around the same, then it might still be a good idea to port your mortgage to avoid mortgage penalty costs but you’ll need to crunch the numbers to be sure. If rates are lower now than when you got your mortgage, it might be a better idea for you to break your current mortgage and get a new one with more favourable terms. Check out this article for the pros and cons of breaking your mortgage before the term is up.
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