Porting a Mortgage!

22.08.24 02:47 PM

Episode # 21 of the Mortgage Foundations Podcast

Today I want to discuss the subject of porting an existing mortgage and explain what a port is and go over the pros and cons of doing so.


First, it is important to mention that not all mortgages can be ported and not all lenders allow their mortgages to be ported; or, may only allow their fixed mortgages to be ported. Further, every lender has different allowances in regards to if the mortgage amount can be increased or decreased with a port; this is important since it is not likely that your future mortgage will be exactly the same amount as your current mortgage. It is important to check your mortgage documents and communicate with your mortgage broker or the lender directly to ensure you are able to port your mortgage if required. It is common for porting to be available at the lender's discretion; which means, it is not always a guaranteed option.


What does it mean to port a mortgage? Well, let's say you are in the market for a new home and you currently have an existing mortgage with a low rate. Porting the existing mortgage basically means that you are transferring it from one property to another. The mortgage rate and the terms of the mortgage move along with you to the new house.


The main benefits of porting a mortgage is to keep the rate that you currently have; which can be beneficial, especially if your mortgage was arranged when rates were super low a few years ago. Keep in mind that if a higher mortgage amount is required, the current low rate will only apply to the current mortgage balance with the increased amount being charged interest at the lender's current rates. This is called an increase and blend and will be touched on shortly.


The other benefit to porting a mortgage is that you will likely save on penalty fees. Since the mortgage is being ported instead of being broken, there won't be any prepayment penalties charged on the mortgage. Depending on the mortgage balance, this can reflect a substantial savings in penalty fees.


There are three main types of mortgage ports; a port and decrease, a port and increase and then a straight port. As mentioned previously, it is important to know your lender's allowances on ports, since every lender has a different view depending on what type of port is required. A straight port is the easiest port to navigate as nothing really changes; other than the property itself. A straight port is usually not very common since it may not be likely that the mortgage amount required is exactly the same on the two properties. A port and decrease would normally be seen with clients that are downsizing properties and the new property will require a lower mortgage than the current amount. Many lenders may not participate in a port and decrease since it is viewed as a material change in the mortgage and they opt to have the mortgage broken and a new mortgage arranged instead.


A port and increase is more common and would come into play when clients are up-sizing their property and require a higher mortgage amount. It is important to note that only the amount of the current mortgage will apply to the current mortgage's interest rate with any amount required above the current mortgage being subject to the lender's then current interest rate. This is referred to as an increase and blend, since the two interest rates are blended into one new rate. For an example; let's say your current mortgage is $600,000 and the interest rate is 3% with 36 months remaining in the term. The new property requires a total mortgage of $800,000 (or an increase of $200,000) and the lenders current interest rate is 5%. Assuming the lender allows the term to remain the same on the new $800,000 mortgage; the blended interest rate would be 3.5%. Your lender will also need to go through the qualification process for an increase and blend to ensure you qualify for the new mortgage amount.


The main con to porting a mortgage is that there maybe a very small window of time where you are allowed to do so. If you sell your current property and have not secured a replacement property, your lender may only give you a couple of months to close on a new property and transfer the mortgage to it. This may not allow much time to work in order to keep your rate and limit potential penalties.


As always, it is important to keep in contact with your lender and your mortgage broker prior to planning to use the porting option. Your lender can advise if they will be able to allow the port to the new property once they know the plan and your mortgage broker can review any other options and ensure that porting the mortgage is the most suitable solution for you and your family.


In conclusion, in its simplest form a mortgage port is really just transferring the mortgage from one property to another. Not all lenders allow ports, some allow them at their discretion and for the lenders that do allow them; each of them may handle the port differently; therefore, its important to know ahead of time so you don't get stuck.

Mortgages Foundations