Porting your mortgage when you move: how it actually works

Porting your mortgage when you move: how it actually works

Moving homes is an exciting, albeit often stressful, time. Amidst all the packing, planning, and paperwork, one crucial aspect that often comes up for homeowners is their mortgage. Specifically, many wonder if they can "port" their existing mortgage to their new property. It sounds appealing, doesn't it? The idea of simply transferring your current mortgage, with its familiar rate and terms, to your new home. While porting can be a fantastic option that potentially saves you thousands in prepayment penalties, it's not always as straightforward as it seems. There are conditions and nuances that many homeowners don't discover until they're deep into the moving process.

As a mortgage broker, I've guided countless clients through the complexities of moving their mortgages. My goal with this article is to demystify mortgage porting, explaining how it actually works here in Canada, particularly for those of us in British Columbia, and help you understand if it's the right move for your next home.

What Exactly is Mortgage Porting?

At its core, mortgage porting allows you to transfer your existing mortgage, including its interest rate, terms, and remaining balance, from your current property to a new one. Think of it like taking your mortgage with you when you move. The primary advantage of porting is the potential to avoid a costly prepayment penalty. If you break a closed mortgage early, lenders typically charge a penalty, which can be substantial, especially if interest rates have dropped since you first took out your mortgage. Porting can help you sidestep this fee entirely.

However, it's important to understand that porting isn't just a simple transfer. It's usually a process where your lender agrees to let you keep your existing mortgage product for your new home. This agreement comes with conditions, and it's these conditions that often catch people by surprise.

When Porting Makes Sense (and When It Doesn't)

Porting is most advantageous when you have a closed mortgage with a favourable interest rate that you want to keep, and you're moving to a new home relatively soon after selling your old one. If current interest rates are higher than your existing rate, porting can save you a significant amount over the remaining term of your mortgage.

Here are some scenarios where porting might be a good idea:

• You have a low, fixed interest rate: If you locked in a great rate a few years ago and rates have since increased, porting can save you a lot of money compared to taking out a new mortgage at a higher rate.
• You want to avoid prepayment penalties: This is often the biggest driver for porting. Penalties can be tens of thousands of dollars, depending on your mortgage size, rate, and remaining term.
• You're moving to a similarly priced or more expensive home: Porting often involves blending your existing mortgage with a new, additional mortgage to cover the higher purchase price.
• You're staying with the same lender: Porting always requires you to stay with your current lender. If you want to switch lenders, porting isn't an option; you'll need to break your mortgage and get a new one.

On the flip side, porting might not be the best choice if:

• You're downsizing significantly: If your new home is much cheaper, you might have to pay down a large portion of your existing mortgage, which could still trigger a penalty on the portion you pay off.
• You want to change lenders: As mentioned, porting ties you to your current lender. If another lender offers significantly better terms or a much lower rate on a new mortgage (even after considering penalties), it might be worth breaking your current mortgage.
• Your financial situation has changed dramatically: Even if you're porting, your lender will re-qualify you for the mortgage. If your income has decreased, or your debt has increased, you might not qualify for the same mortgage amount, or even for porting at all.
• There's a significant gap between selling and buying: Most lenders have a limited window (often 30-90 days) during which you must complete both transactions for porting to be an option. If your move-out and move-in dates are far apart, porting might not be feasible.

The Nitty-Gritty of Porting: What Your Lender Will Look At

When you approach your lender about porting, they won't just wave a magic wand and transfer your mortgage. They'll treat it almost like a new mortgage application, with a few key differences.

Here's what your lender will typically assess:

1. Your Creditworthiness: They'll pull your credit report and assess your credit score, just as they did when you first applied for the mortgage.
2. Your Income and Employment: Your current income and employment stability will be verified. If your job situation has changed, this could impact your eligibility.
3. Debt Service Ratios: Your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios will be recalculated to ensure you can still comfortably afford your mortgage payments, along with any other debts.
4. The New Property: The new home will need to be appraised to ensure it meets the lender's collateral requirements. The property type and location also play a role.
5. CMHC Insurance: If your original mortgage was high-ratio (less than 20% down payment) and therefore insured by CMHC, Genworth, or Canada Guaranty, the insurance will typically transfer to the new property, provided you still meet the insurer's guidelines. If you're adding to your mortgage, the new portion might also need to be insured, or you might need to make a larger down payment to avoid it.

Blending and Extending: The Common Scenario

It's rare that your new home costs exactly the same as your old one. More often than not, you'll need a larger mortgage for your new property. This is where "blending and extending" comes in.

Here's how it generally works:

• Porting the Existing Portion: Your original mortgage amount, with its existing rate and terms, is ported to the new property.
• Adding a New Portion: You take out a new mortgage for the additional funds you need. This new portion will be at the lender's current interest rates and terms.
• Blending: Your lender will then "blend" these two mortgages together. This typically results in a new, blended interest rate that is a weighted average of your old rate and the new rate, applied to the total new mortgage amount. The term of the entire mortgage will also be extended, usually to match the term of the new portion.

The BC Specifics: Property Transfer Tax and More

For those of us in British Columbia, moving homes also brings up the topic of Property Transfer Tax (PTT). While porting your mortgage doesn't directly impact PTT, it's an important cost to factor into your move. PTT is payable on the fair market value of your new property, with rates varying based on the purchase price. For example, it's 1% on the first $200,000, 2% on the portion between $200,000 and $2,000,000, and 3% on the portion above $2,000,000. There are exemptions for first-time homebuyers and newly built homes, but these have specific criteria.

Other BC-specific considerations, though not directly related to porting, include:

• Legal Fees: You'll incur legal fees for both the sale of your old property and the purchase of your new one, regardless of whether you port your mortgage.
• Appraisal Fees: Your lender will likely require a new appraisal for the property you're buying, which is typically an out-of-pocket expense.
• Property Tax Adjustments: Be prepared for adjustments to property taxes and strata fees (if applicable) on closing.

FAQ

Q: Can I port my mortgage if I'm moving to a different province? A: Generally, yes. Mortgage porting is typically available across provinces, as long as your lender operates in both locations. However, the property type and local regulations in the new province will still be assessed by your lender.

Q: What if I have a variable rate mortgage? Can I still port it?

Related mortgage resources

• Explore my free intake for me to review to see where you stand with no obligation.
• Explore my home purchase planning to plan a confident purchase.
• Read Navigating Mortgage Renewal in Metro Vancouver: Smart Strategies to Avoid Rate Shock for a related BC mortgage perspective.