A Guide to Porting Your Mortgage Before a Move
Of the many things you have to worry about when you buy a home, your mortgage may be the biggest. Your deal may depend on it. You might have only a short amount of time to get approved. And getting the right mortgage can mean the difference of thousands of dollars, not to mention the difference between getting the home you want or not.
If you already own a home, you will at least have a little practice. But the process will be more complex this time around. In addition to getting a mortgage for your new home, you have to worry about discharging your existing mortgage. The penalties for breaking your mortgage can add up quickly, especially if it’s still early in the mortgage term. That’s why many homebuyers choose to port their mortgage.
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What is porting?
Porting a mortgage is simply taking your existing mortgage and applying it to a new property with all the same rules. Rather than closing out your existing mortgage and opening a brand new one, porting allows you to take the same payments, mortgage rate, prepayment terms, etc. to your new home.
Should I port my mortgage?
That depends. There are times when it’s advantageous to port your mortgage and times when it’s not.
Once when it’s a good idea to port your mortgage is if rates have gone up since you initiated your mortgage. Paying penalties and fees for the privilege of also paying a higher mortgage rate isn’t a good idea. Currently, however, there’s not much chance you will find yourself paying a higher rate if you buy a new home. The best mortgage rates in Canada are right around where they were this time five years ago, and they were higher in the interim. Chances are if you’re buying a new home in the middle of your mortgage term, you’ll get a similar or lower rate on a new mortgage.
It can also make sense to port your mortgage when you have a long time left on your existing mortgage term. Depending on the type of mortgage you have, your lender might calculate the penalty to break it using an interest rate differential (IRD). The IRD calculation is used to figure out the difference between how much interest you would have over the remainder of your term and how much interest they could have made over the same time period using their posted rate. Since paying the posted rate for a mortgage is about as common as paying sticker price for a new car, this difference can be enormous, especially in an environment where mortgage rates are declining (as they are now). Porting your mortgage in this case can help you save these enormous fees and may be the most economical option.
Porting your mortgage may not be a good idea if you can break the mortgage for little or no penalty (such as right at the end of your term). It may also be worthwhile to break your mortgage and get a new one if rates have gone down significantly and you can recover the cost of fees and penalties through lower payments.
What if I’m moving up to a more expensive home?
Porting your mortgage is easiest when you’re downsizing, and the sale of your current home will pay for the entire purchase price of your new home. But what about when the opposite is true, and you’ll need to borrow more money to buy the home you want?
In this case, you can sometimes get what’s called a blended mortgage. This involves staying with the same lender and combining your current mortgage with a new mortgage. You essentially pay the same interest rate on the money you had already borrowed, and a different rate on the new amount. Oftentimes the lender will extend this to a full 5-year term and average your payments out over the full term.
Whether you’re porting or blending, you’ll still be required to qualify as if you were getting a brand-new mortgage. That involves proving your income and assets, and it may involve having the new home appraised. A mortgage affordability calculator can help you understand how much you can afford to spend. If the closing date for your new home is earlier than the closing date for your old home, you’ll still need to arrange for bridge financing to make it all happen.
How can I port my mortgage?
Porting your mortgage starts with a call to your mortgage broker. They will be able to review all of the specifics of your situation with you. Your mortgage broker can help you understand the cost to break your current mortgage, what porting options are available to you (the rules vary by lenders and some don’t allow porting at all), and what the advantages or disadvantages may be to breaking your mortgage and getting a brand new one for your new home.
Even if you got your mortgage through your bank, you should still contact a mortgage broker because they have access to mortgage products from many different lenders. The salesperson at your bank will work to keep you with the bank, while a mortgage broker will work to get you the best mortgage for your needs.
The best mortgage for you
Porting your mortgage isn’t always an option. And, there’s a chance your existing mortgage won’t cover all of your needs for your new home.
As with all financial products, mortgages offer a lot of variety – and the right mortgage depends on what you plan for the future. There are circumstances when porting will meet your requirements, and times when it’s better to break your mortgage. Talk to your mortgage broker to get the right mortgage for your needs.
FAQ – Frequently Asked Questions About Mortgages in Canada
Why use a mortgage broker instead of a bank mortgage advisor?
When comes the time to get a mortgage, most people are unaware of their options regarding mortgage lenders. A lot of people think a mortgage broker and a bank mortgage advisor is the exact same thing. In fact, hiring a mortgage broker will allow you to find the most suitable mortgage lender out there. Mortgage brokers have access to numerous lenders from various industries including private lenders, big banks and other financial institutions. When hiring a mortgage broker, you will have a personalized experience fitted just for you.
Bank mortgage advisors, on the other hand, only have access to their internal rates and cannot compare outside of their bank. There are also much stricter approval conditions when hiring a bank mortgage advisor. However, banks are familiar to us and therefore usually reliable which is why we can trust them more easily.
What is mortgage loan insurance?
Contrary to popular belief, mortgage loan insurance does not protect you in case you can’t make your mortgage payments, it actually protects the mortgage lender. In Canada, mortgage loan insurance is usually mandatory if your down payment is less than 20% of the purchase price. In some cases, your mortgage lender may still obligate you to take mortgage loan insurance even though you put 20% down because your credit history is low or you’re self-employed.
How much is mortgage loan insurance?
Mortgage loan insurance usually costs between 0,6% and 4.50% of your mortgage. The higher your down payment, the lower your mortgage loan insurance fee will be.
How does refinancing a mortgage work?
Refinancing a mortgage involves borrowing money against the equity of your home. To find out your home equity, you must deduct the amount you owe on your mortgage from the value of your home. Refinancing a mortgage, however, comes with fees. These fees include interest, legal fees, title insurance fees, title search fees and appraisal fees.
You should consider refinancing your mortgage if:
- You need emergency money and have exhausted all other options.
- You will be staying in the home for a few more years.
- You need to pay off a huge amount of debt.
- You need immediate money for investing.
- You want to reduce your monthly payments.
How do I pay off my mortgage faster?
Paying off your mortgage faster is a great way to save huge sums of money on interest rates in the long run. Be careful to not exceed the maximum amount permitted by your mortgage contract or you may have to pay prepayment penalties.
To pay off your mortgage faster, you can:
- Make lump-sum payments during certain moments of your term.
- Increase your recurring payments.
Can you get a mortgage for a land?
Yes, in Canada, you can get a mortgage for a land. Mortgages for lands do require large down payments that can reach as high as 50% for lands that are used for long-term investments. By contrast, a land you are planning to build on in the near future usually requires a much lower down payment between 20% to 30%.
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