Imagine you bought your dream home two or three years ago. But one day you happen to find a new place and decide to sell your current home. If you sell and you’re in the middle of a five-year term, you probably think you’ll have to break your mortgage. But you may also be able to port the mortgage.
Porting your mortgage means taking your existing mortgage—along with its current rate and terms—from one property and transferring it to another. You’re only allowed to port your mortgage if you’re purchasing a new property at the same time you’re selling your old one.
It’s common that the mortgage you’ll need for the new property will be larger, which isn’t an issue. Your lender will offer you what’s called a blend and extend. This is essentially a weighted average of the existing mortgage and interest rate and the new money required at a current mortgage rate.
Let’s assume you have a $250,000 balance remaining on your mortgage, you have a fixed rate of 2.1%, and you’re two years into a five-year term. You can break your mortgage and pay a fee or you can borrow the additional amount from your lender. If the best mortgage rate you qualify for is 2.69%, the blended rate will be somewhere between 2.1% and 2.69%.
For example, if you need to borrow an additional $75,000 and you want a new five-year term, your blended rate will be 2.42% on a $325,000 mortgage.
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To port or not to port
If you’re considering porting, it makes the most sense to do it when your mortgage rate is lower than what’s being offered by lenders. But if the mortgage rate you can qualify for is lower than what you currently have, it might not make sense to port. Also, you should look at the penalty to break your mortgage before deciding whether or not to port.
There’s also the possibility you won’t be able to port your mortgage. Some lenders will allow you to do this while others will not. So if you’re planning to move during the term of your mortgage, this is a very important feature to have. A mortgage broker will be able to tell you which lenders are portable.
Also, not all mortgages are portable. For example, most variable-rate mortgages can’t be ported. And the amount of time you have to complete the port, which is usually between 30 and 120 days, varies among lenders. Some will allow just 30 days, which may be tight in some circumstances. But 120 days is usually enough time for someone to complete the sale of their old property and complete the purchase of their new home.
The bottom line
If you’re not planning on moving, the ability to port your mortgage is an important feature because you don’t know what the future holds. If you’re able to port your mortgage, you can save thousands of dollars and won’t be charged a prepayment penalty.
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Flickr: Katherine Johnson