A portable mortgage can be a game-changer for homebuyers and homeowners, particularly if you’re anticipating changes in your housing needs and require extra flexibility before your term is up. It’s important to be aware that not all mortgages come equipped with this feature.
The most popular mortgage selected by Canadians is the five-year fixed-rate option. While this isn’t always the best choice, it’s definitely the most common. A lot can happen in five years. What if you need to buy a bigger home to accommodate your growing family or you get transferred for work, for instance? This is where the issue of mortgage portability becomes especially important.
Selling your current home and moving into a new one can be stressful enough, let alone if you’re worrying about your existing mortgage and whether you’re able to carry it over to your new home.
Porting enables you to move to another property without losing your current interest rate, mortgage balance and term. And, better yet, the ability to port also saves you money by avoiding early discharge penalties.
Top three buyer groups who could use this type of mortgage, include:
- Growing Families. One of the biggest groups who could benefit from a portable mortgage are families that may need to move to a larger home as they grow. Whether it’s to accommodate a new baby or to find a place in a better school district, a portable mortgage allows families to transfer their existing mortgage to a new property without incurring penalties. This eliminates the stress and financial burden of paying off an old mortgage and securing a new one.
- First-Time Homebuyers: Many first-time homebuyers are uncertain about how their needs may change in the coming years. A portable mortgage offers them the peace of mind that, if their situation changes, such as a job transfer or family expansion, they can move without the added stress of restructuring their mortgage.
- Job Relocators: Individuals whose jobs require them to relocate, often on short notice, are prime candidates for a portable mortgage. Moving for work can be costly and disruptive, but portability ensures that they don’t lose out financially on their current mortgage. With this feature, they can maintain the same interest rate and terms on their new home, making the transition smoother.
How do I know if my mortgage is portable?
it comes to fixed-rate mortgage products, you usually have a portability option. Lenders often use a ‘blended’ system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate.
But this isn’t always the case, especially if you opted for a low rate ‘no-frills’ product. Be sure to ask about portability before signing your mortgage contract.
With variable-rate mortgages, porting is usually not available. This means that, when you break your existing mortgage, a three-months’ interest penalty will be charged. And this charge may or may not be reimbursed with your new mortgage.
While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, some conditions may apply. For one, some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day. Other lenders offer a week to do this, some a month and others up to three months.
As well, some lenders don’t allow a changed term or push you into a longer term as part of agreeing to port your mortgage.
Some lenders will, in fact, reimburse your entire penalty, regardless of whether you’re a fixed or variable borrower, if you simply get a new mortgage with the same lender – replacing the one being discharged.
And, finally, some lenders will even allow you to move into a new term of your choice and start fresh.
There are also instances where it’s better to pay a penalty at the time of selling and get into a new term at a new rate that could save back your penalty over the course of the new term.
Have questions about mortgage portability or other important options? Answers are just a call or email away!