We don’t know how many times we have to say this. When you ask us, “what’s the best mortgage?” and we answer “it depends,” we truly mean it—it’s not just a fancy line we use to get out of answering your questions.
The ‘best mortgage’ question particularly applies when you’re buying or selling your home.
One option that might be available to you is to port your mortgage from your old home to your new home, saving you money on interest costs and other fees.
And, who doesn’t like to save a little interest these days?
What Is Porting Your Mortgage?
When you port a mortgage, it simply means taking your existing mortgage and bringing it over to your new home.
As we said, when you port your mortgage to your new home, it can save you from paying penalty fees and interest costs if you were to break the mortgage.
It can also mean you maintain your current interest rate and mortgage terms with the same lender in the new home.
Now, if everything was equal, such as the price of the new home, porting would be a no-brainer. However, things are rarely equal when buying and selling a home.
When Your New Mortgage Will Be Smaller Than Your Current Mortgage
Let’s say you’re downsizing and purchasing a property that will need a smaller mortgage than your current mortgage.
In this instance, it may make sense to port your mortgage to the new property and use the sale proceeds from your first property to either make a larger down payment or make a prepayment on the mortgage balance.
There’s a bit of strategy here as to which option makes sense. You will have to make a down payment on the new property regardless. How much you want to pay down the mortgage balance after that depends on your lender and the type of mortgage you’re porting.
Once the new balance is set, your payments from the previous mortgage resume. They will continue to be based on the original mortgage amount and amortization. Your new payment and rate will be set when you start your new mortgage term.
When Your New Mortgage Will Be Larger Than Your Current Mortgage
In the opposite scenario, it’s time to upgrade and move into a bigger home. It’s still possible to port your mortgage to your new home. In this case, it would be a blended mortgage.
A blended mortgage is when two mortgage rates are combined into one. We know what you’re thinking, “that’s going to cost major moola.” But this option can cost less than the penalty fees of breaking a mortgage.
If your mortgage rate is lower compared to current interest rates and you have a few years left on your term, a blended rate can still be a cost-effective option.
There are two types of blended mortgages:
Blend to Term: With a blend to term mortgage, the time left on the current mortgage is kept intact. For example, if there are two years remaining of a five-year term, any new money will be added to the mortgage for the rest of the term, in this case, two years.
The average of the old mortgage amount and rate, and the new mortgage amount and rate is your new blended interest rate. The time remaining on the original mortgage is not factored in, and the mortgage will renew on the old schedule.
Blend and Extend: In this option, the amount of time left on the old mortgage term is factored into your new mortgage.
For example, the existing mortgage balance is $300,000 at 2.5%. You have two years remaining in your term.
The new mortgage balance will be $400,000 for a new term of five years at 5%.
The lender will blend these two rates and terms to produce one interest rate for a new term of 5 years on $400,000 with a rate somewhere in between your old rate and new one.
Unfortunately with current interest rates, these blend options might not be the most cost-effective option depending on where you are in your term.
If you need a higher loan amount, you will also need to requalify to assess if you can support the higher interest rate.
Porting a Variable Versus a Fixed Rate Mortgage
This is one instance where a fixed-rate offers a bit more flexibility than a variable-rate mortgage.
If you have a fixed-rate mortgage, you’ll likely have a better chance at porting your mortgage. Most lenders won’t let you port a variable-rate mortgage unless you convert to a fixed-rate term.
If you got a great deal, and we’re saying a smokin’ deal, on a rate and term when you got your mortgage, then it likely makes more sense to port.
Note: Not all lenders in Canada will allow you to port your mortgage. Some products specifically say “non-portable” so that’s why it’s so important to know the terms of your mortgage beyond your interest rate.
Is It Worth It To Port Your Mortgage?
All together now…it depends.
We have to take in the time left on your mortgage, the type of mortgage you have, the type of property you want to move into, the payout penalties, etc., etc.
If you’re thinking about porting your mortgage to save money on your monthly budget, there are easier alternatives.
Talk to your broker about options to change your payment schedule, refinance your current mortgage, switch to a fixed rate, and more.
And whatever you do…don’t go down the portability road alone. Work with your trusted real estate team before deciding if porting your mortgage is the right option for you.