Porting a Mortgage in Canada: When Does It Make Sense?

Porting a mortgage, also known as transferring a mortgage, is a process all homeowners should be familiar with.

The porting process allows you to apply your current mortgage terms to a new home loan with the same lender — all without breaking your mortgage contract. Porting a mortgage allows you to sell your house in the middle of a mortgage term and purchase a new one without having to pay potentially hefty prepayment penalties.

Let’s find out what porting a mortgage involves, and when it’s a good idea.

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How porting a mortgage works

Porting a mortgage is the process of transferring your current mortgage to another property after you’ve sold your current home.

When porting a mortgage, your current interest rate and prepayment benefits all remain in effect, which can be especially beneficial if current mortgage rates are higher than when you negotiated your existing mortgage.

Can all mortgages be ported?

Many lenders allow their clients to port their mortgages, but not in every instance. Porting can only be done if you’re buying a new property and selling your old one.

Variable-rate mortgages cannot be ported. Most fixed-rate mortgages, however, can be ported — unless they’re restricted. A restricted mortgage typically sacrifices flexibility for lower rates.

If you’re in a variable-rate mortgage and wish to port it, you may have to convert to a fixed rate first. If you’re in a restricted fixed-rate mortgage and have to sell your home before your term expires, you won’t be able to port it. You’ll have to break your mortgage contract.

That’s why it’s critical to check the details of your current mortgage before putting your home on the market. A quick call to your lender or mortgage broker should be the first step of the mortgage porting process.

Porting a mortgage to a more expensive home

If you end up buying a home that requires a mortgage larger than the one you’re currently paying down, you’ll have to borrow more money from your lender to make up the difference. Buyers in this situation often find themselves in “blend and extend” mortgages.

A blend and extend occurs when your lender applies a rate somewhere between your current rate and the one they’re offering on your new loan to a new mortgage term. For example, your current mortgage rate might be 2.5%, while your lender’s best offer today is 5.5%. Your blended rate could be somewhere around 4% for the next five years — much higher than what you’re currently paying, but also significantly lower than the rate you might be offered if you applied for a new mortgage.

If you’re upsizing and require a larger mortgage, your lender will need to requalify you based on your current financial situation. Expect to:

Have your credit score and debt service ratios evaluated.
Get an appraisal for your new home.
Provide proof of income and a letter of employment.

If you meet your lender’s criteria, it should be no problem to port things over. But if they’re worried about your debt load or the value of your new home, they may not extend the full amount unless you make a larger down payment.

Porting a mortgage to a less expensive home

If you’re downsizing, you may find yourself moving to a home that’s worth less than your current mortgage. In such cases, you may face a prepayment fee on the amount by which your mortgage decreases.

One way to avoid this is by reducing the down payment you make on the new property, since making a smaller down payment means prepaying less of the remaining mortgage. If possible, you might be able to arrange a small enough down payment that you don’t prepay any of your outstanding mortgage balance and escape paying any penalties.

While making a larger down payment is generally a good rule to live by, making a smaller one while downsizing and porting can still be beneficial, especially if it saves you money on your rate. The capital you don’t initially put toward your new home purchase can be used for future mortgage payments. Depending on your mortgage details, you may be able to use it to make a modest prepayment in the future.

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When does porting a mortgage make sense?

Deciding whether to port your mortgage comes down to simple math. If it saves you money and you can afford the new mortgage payment, it’s generally a good idea.

Let’s say the remaining balance on your mortgage is $400,000, and you’re paying a fixed rate of 3%. The new home you want to purchase is $500,000, and current interest rates are at 5%. That means you need to borrow an additional $100,000. If you were to port your mortgage and blend and extend, your interest rate would fall between 3% and 5% on a new term. That’s better than current rates — and you’re not paying any penalties — so you should come out ahead.

Crunching these numbers is much easier and more accurate with the help of an expert, so ask your mortgage lender or mortgage broker for assistance if porting is something you’re considering.

Alternatives to porting a mortgage

One alternative to porting a mortgage is breaking your current mortgage before your renewal date and paying a penalty. These penalties can be quite high for fixed-rate mortgages — the only kind that can be ported — especially if there is considerable time left on the term.

After breaking, you could then choose a different lender who might offer a lower interest rate compared to your lender’s blend and extend offer.

Another alternative is to let the buyer of your current home assume your mortgage. This only works if both parties are interested and your lender approves it.

For the buyer, the potential benefit of assuming a mortgage is access to a lower interest rate. As the seller, you’d be off the hook for the mortgage and wouldn’t need to pay any penalty fees because you’re not breaking the contract. In some provinces, however, the seller may remain personally liable on an assumed mortgage if the buyer misses a payments, so be sure to understand the rules in your jurisdiction.

Pros and cons of porting a mortgage

In some cases, porting a mortgage can work to your advantage, but it’s not always be the right move. It’s important to weigh the potential benefits and drawbacks before deciding whether to port your mortgage.

Pros

Favourable terms are extended. If your current mortgage has good terms and a low mortgage rate, you may want to stick with it to pay for your new house.
Lower monthly mortgage payments. Assuming interest rates have gone up since you negotiated your existing mortgage, your payments will be lower than if you break your current mortgage contract and sign a new one.
No penalty. Since you’ll be transferring your mortgage and not breaking it, you won’t be charged prepayment fees (unless you are reducing your mortgage balance).

Cons

You may not get the lowest rate. Other mortgage providers may have better rates than what your current lender is offering.
Limited time. Your lender will only give you between 30 and 120 days to port your mortgage. This may not be enough time to buy a new home and sell your old one.

Porting a mortgage shouldn’t result in any new fees, but it can cost you in other ways, including higher interest rates, appraisal fees, or prepayment penalties.

Porting a mortgage can mean re-qualifying, which requires document collection and income verification. You could face a delay if getting your new home appraised when the housing market is busy and local appraisers are dealing with backlogs. You may be expected to complete the porting process within 30 and 120 days of approval, so you could face difficulties if you’re trying to sell your home when the market is slow.