One of the most commonly asked questions by homeowners in Brampton, Toronto, and the GTA looking to buy a new home is whether their existing low-rate mortgage can be taken with them, with all its current terms and conditions. The answer is – maybe!
Porting a mortgage is the process of transferring a mortgage from one house to another, keeping the existing mortgage interest rate and term with the same lender, all without breaking the current mortgage. Homeowners choose mortgage portability if their existing interest rate is lower than the rate they could currently get in the mortgage marketplace. Porting allows you to –
- keep your lower interest rate instead of switching to a higher one
- keep the same monthly payment
- not break your current mortgage contract and incur hefty fees or penalties
- stay with the same lender so there is no time wasted applying for a new mortgage
Is mortgage portability available to all homeowners?
While this may seem like a sound solution, it’s important to check your current mortgage contract before considering this as an option. Why?
- You may not have portability in your mortgage contract, particularly if you took a restricted low-rate fixed mortgage
- You cannot typically port a variable-rate mortgage, you would need to convert to a fixed-rate first
Homeowners are surprised when they find they can’t port their mortgage, which reinforces why you should always look beyond your mortgage rate and consider important mortgage features like portability before you decide on which mortgage to take for your purchase, refinance, or renewal.
Porting a mortgage to a higher-value property
If you’re in the market for a new home and need a larger mortgage than your current one, you may be able to get a “blend and extend” option available for this situation. This type of mortgage allows lenders to blend your current rate with the new one they’re offering for your bigger loan, resulting in an interest rate that falls somewhere in between the two.
Since you are requesting a larger mortgage from your lender, they will want to requalify you the same as when you got your original mortgage, which means a credit check, providing proof of your income and employment, and getting an appraisal on the new home. If you don’t qualify, you may need to increase your downpayment.
I can analyze your situation and help you determine if you come out ahead or not. Or we may be able to port your existing mortgage and make up the difference with a second mortgage, which means you’ll have another lender to make payments to and this amount will be at a higher rate.
Thinking of downsizing?
If your new home is worth less than your current mortgage, you may still be able to take your current mortgage with you. However, you may face a pre-payment fee on the difference between your old and new mortgage. Your mortgage contract will outline how much you can prepay each year without incurring a fee. The rest will be subject to a pre-payment penalty.
You could reduce your down payment on the new property to the point where the mortgage amount does not need to change, which gives you some extra money to use in your new home, to save, or for your lifestyle.
What if you can’t port your mortgage?
If you can’t port and need to break your mortgage so you can get a new one for your home purchase, you’ll have to pay the applicable penalty. And these penalties can be quite extensive on fixed-rate mortgages depending on how much time is left on the term of your mortgage and the lender you are with. Your lender can advise how much your penalty will be. If you break your mortgage, you can renegotiate with your current lender or you can then shop around and possibly find a lender offering a very competitive rate that would not be much different from your current lender’s blend and extend rate.
Can the buyers of my home take on my mortgage?
This may be possible and a way for you to get out of your current mortgage and not pay the penalty to break your contract. Again, it depends on many things and is something we can discuss when I review your situation.
Is porting your mortgage right for you?
Again, this all depends on an analysis of your situation and what is available in the current mortgage marketplace. Together we’ll look at –
- How much have interest rates risen since you took out your original mortgage? How much interest will you save if you keep your current mortgage?
- What is the penalty to break your current mortgage?
- What your lender allows in terms of porting i.e., what timeline do they permit for selling and then buying your new home?
We’ll want to make sure that your new mortgage payments are less with porting than if you broke your current mortgage, incurred the fee to break that mortgage, and then took out a new mortgage.
Expert advice is always so important
Mortgage portability is an important feature for many in Brampton, Toronto, and the GTA. The option of taking your mortgage with you when you move to your new home allows you to keep your existing rate and term and avoid paying a penalty to break your mortgage. And that’s why it’s so important to get professional advice early in the home-buying process. I not only work hard to get you the lowest rate for your situation, but I also advise on what mortgage features like mortgage portability may be important to you so you can make the most informed decision possible.
If you are looking at buying a new home and are wondering about porting your existing mortgage, please get in touch and I will outline all your available options. Interest rates have risen dramatically since the beginning of 2022, so this is a question that is on the minds of many homeowners in Brampton, Toronto, and the GTA who are thinking of selling and buying a new home.
A list of to dos when you are looking to sell your home
- Recent House Sales in the Area: It’s important to look at recent house sales in the area to get an idea of what price range potential buyers might be willing to pay for your current home.
- Portability and Prepayment Penalties: Not all mortgage contracts allow for portability, so check your mortgage contract or contact your lender.
- Prepayment Penalties: Whether you port your mortgage or not, you may be charged a fee if you pay off your mortgage before it is due. Be sure to check with your lender.
- Get in touch as early in the process as possible for advice on how to make a smooth move. If you need a realtor to sell your home and to help you buy a new one, I can recommend a top-notch local realtor.
And an update on Mortgage Rates
I am frequently about where rates may be heading. I expect the Bank of Canada will hold the policy rate at the next announcement on April 12th. Not many economists are projecting any Bank of Canada rate decreases in 2023 but likely in 2024. It will all depend on upcoming inflation numbers and economic activity like GDP and job numbers. So those looking for a drop in their adjustable rate mortgage will have to wait. Those in variable mortgages will need to continue staying the course and pay down as much principal as possible.
Fixed rates have been dropping slightly as a result of the Bank crisis in the U.S. Investors have been moving to safer haven bonds which increases demand/bond prices while lowering yield. To try and determine where fixed rates are heading, we follow the bond market. With fixed rates dropping and prime holding steady, you may wonder about locking in your variable mortgage. This may not be the best move for you so please contact me for a review of your situation so you can make the most informed decision.
