When it comes to real estate in Canada, mortgage portability stands out as a significant yet often underutilized feature. For homeowners looking to move without losing the benefits of their existing mortgage, portability can offer a pathway to financial stability and flexibility. Let’s delve into the benefits, potential drawbacks, and essential considerations for homeowners.

What is mortgage portability?

Essentially, this is a feature that allows homeowners to transfer their current mortgage to a new property without incurring penalties for breaking the mortgage contract. This means that when you sell your home and purchase another, you can carry over your existing mortgage terms, including the interest rate and remaining amortization period, to your new property. This can be particularly advantageous in a fluctuating interest rate environment.

Mortgage portability benefits

There are three basic benefits to this approach.

• Cost savings ─ One of the primary advantages is the potential to save money. Breaking a mortgage early can result in hefty penalties, often in the thousands of dollars. By porting your mortgage, you avoid these fees.
• Interest rate security ─ If you secured a mortgage during a period of low interest rates, portability allows you to maintain that rate even if current rates are higher. This can lead to substantial savings over the life of your mortgage.
• Convenience ─ Porting a mortgage can simplify the home buying process. Rather than negotiating a new mortgage and undergoing the approval process again, you can transfer your existing mortgage which may save time and reduce paperwork.

Drawbacks and considerations

The decision to port your mortgage should take into account the following.

• Eligibility requirements ─ Not all mortgages are portable. It's essential to check with your lender to determine if your mortgage includes a portability clause and what specific conditions apply. Some lenders may have restrictions or require re-qualification.
• Timing constraints ─ Mortgage portability often comes with strict timelines. Typically, the sale of your current home and the purchase of your new home must occur within a set period, such as 90 days. If there is a gap between selling and buying, you may need to bridge the financing, which can be complex and costly.
• Property eligibility ─ The new property must meet the lender's criteria for the mortgage to be ported. This can include factors like property type, location and value. If the new home doesn’t meet these criteria, portability may not be an option.
• Terms and conditions ─ Pay attention to requirements related to the maximum length of amortization and the mortgage amount of the new loan as it relates to the existing mortgage balance.
• Partial porting ─ If you’re upgrading to a more expensive home, you might need additional financing beyond the amount of your existing mortgage. This can involve combining the ported mortgage with a new one, which could result in a blended interest rate that’s higher than your current rate but lower than prevailing market rates.

Steps to porting your mortgage

1. Review your mortgage agreement: Start by examining your current mortgage agreement to confirm that portability is an option. Pay attention to any specific terms and conditions.
2. Contact your lender: Speak with your lender to discuss the process and ensure you understand the requirements. Your lender can provide details on timing, property eligibility and any necessary re-qualification.
3. Coordinate the sale and purchase: Work closely with your real estate agent to synchronize the sale of your current home and the purchase of your new one within the required timeframe.
4. Apply for portability: Submit the necessary paperwork to your lender to initiate the portability process. This may include proof of the new property's value and your financial standing.
5. Close both transactions: Ensure that the closing dates for both properties align with the lender’s portability conditions.

In closing

Deciding if mortgage portability is right for you requires some careful thought. Reach out to me at any time if you feel I can help.