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. But 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 is 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 having to lose your current interest rate, mortgage balance and term. And, better yet, the ability to port also saves you money by avoiding early discharge penalties.
But it’s important to note that not all mortgages are portable.
How do I know if my mortgage is portable?
When 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. It’s essential to ask about portability before signing your mortgage contract to be certain.
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 force 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 brand 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 brand 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!