Porting a mortgage is a common transaction in Canada and one which can prove to be financially beneficial to many mortgage holders over the term of their loan. First you must determine if your mortgage lender will allow you to port by reading the details in your home loan contract. As this is such a common tool used by homeowners you most likely will be able to move your mortgage without protest. There are a few questions to consider when looking into porting your mortgage. Can you do a port increase or port decrease without penalty? How will my rate change as a result of the port? These questions can be answered by reviewing the contract you have with your mortgage lender.
Port increase vs. port decrease of your mortgage
In the case of a port increase you will be moving your mortgage on to another property and then attempting to increase the mortgage balance, this is usually required when the new home you wish to purchase is of higher value than your current residence. This may require re-qualifying because there is now more money involved and your lender will want to be assured you can qualify for the higher mortgage amount. This also means that your interest rate will be blended with the rates available today. If the current rates are higher than what you have now your rate will increase, if they are lower your rate will decrease. A port decrease entails a move of your mortgage agreement to another home and a reduction in the amount of mortgage you need. Your current mortgage should have a pre-payment privilege of 5% -25%, if your new mortgage is reduced beyond that amount you may be entitled to pay penalties on the difference. In this case the mortgage term and interest rate does not change.
Straight port mortgages are easiest of all
When your required mortgage on the new property is exactly the same amount as your existing mortgage balance there may only be a small fee required. This fee is made up mostly of administrative cost to complete the transaction. When there are virtually no changes that must be made to the original mortgage there can be merely a transfer of ownership and the ensuing paperwork involved to take into consideration. In this case penalties are not a factor and the rate and remaining mortgage term stay the same
When contemplating porting a mortgage follow some helpful guidelines
There are some issues that must be attended to when planning to port your mortgage to another residence.
- Seek out the advice of a Mortgage Agent. These experts in the field will help by going over each detail and advise you as to what to expect and how to handle each action as it comes up.
- A Mortgage Agent will also help you get pre-approved for your mortgage whether you are buying or selling. While it is not always necessary, being pre-qualified saves time and headaches as you work through the mortgage procedure.
- Sell your existing home first if at all possible. You will then have cash readily available for the down payment and any closing costs needed on your new purchase. Even when porting where you are porting for an increased amount there will be certain expenses that are preset and must be paid before closing. Once that property is sold you will also know exactly how much money you will have to work with when negotiating on that new purchase.
- Get the new property approved by your existing mortgage lender so there will be no surprises when you actually port your mortgage.