Can I Transfer My Mortgage to a New Home?

When you’re selling your current home and buying a new one, the question of whether you can transfer your existing mortgage to the new property often comes up. The good news is that mortgage portability is a feature offered by many Canadian lenders, allowing you to transfer your existing mortgage terms, including the interest rate, to your new home. Let’s break down how this process works, when it makes sense, and the key things you should know.

What is Mortgage Portability?

Mortgage portability allows you to transfer your current mortgage—along with its interest rate, balance, and term—to a new property when you sell your existing home and buy another. This can be a great option if you’re locked into a favorable interest rate or want to avoid penalties for breaking your mortgage early.

How Does it Work?

1. Selling Your Home and Buying a New One: When you sell your existing home, you may be able to “port” your mortgage to the new property you’re purchasing. Instead of breaking your mortgage and potentially incurring early repayment penalties, you keep your original mortgage but apply it to the new home.
2. Blending Your Mortgage: If your new home costs more than your existing mortgage balance, your lender may offer a “blend and extend” option. This means you can combine your current mortgage’s interest rate with the lender’s current rate for the additional funds you need to borrow. The result is a blended rate, which may be higher or lower than your original rate, depending on market conditions.
3. Time Frame for Porting: Most lenders require that the sale of your current home and the purchase of your new home happen within a specific time frame, usually 30 to 120 days. If there’s a gap between selling your old home and buying the new one, it’s important to confirm how long your mortgage can be held for transfer.

When Does Porting a Mortgage Make Sense?

Porting a mortgage is particularly beneficial in the following scenarios:

• You Have a Low Interest Rate: If your current mortgage rate is lower than the rates available on the market, porting allows you to keep that favorable rate for the remainder of your mortgage term.
• Avoiding Penalties: If you’re in the middle of a fixed mortgage term, breaking your mortgage to switch lenders could result in significant penalties. Porting helps you avoid these costs by transferring your existing mortgage to the new home.
• Favorable Terms: If your existing mortgage has favorable terms, like prepayment privileges or flexible repayment options, porting allows you to retain these benefits.

Potential Challenges of Porting a Mortgage

While porting your mortgage can be advantageous, there are a few potential challenges to be aware of:

1. Qualifying Again: Even though you’re porting an existing mortgage, you’ll need to re-qualify for it. Your lender will assess your financial situation (income, credit score, debt levels) to ensure you still meet their requirements for the loan. If your financial situation has changed (e.g., loss of income or increased debt), you may face difficulties in getting approved to port the mortgage.
2. Higher Property Value: If the new property is more expensive than your current one, the additional funds you need will likely be subject to current interest rates. As a result, the blended rate could be higher than what you’re currently paying.
3. Portability Fees: Some lenders charge fees for porting a mortgage, such as appraisal or legal fees. These costs should be factored into your decision.
4. Timing Constraints: Not all mortgages are portable, and even if yours is, the time frame to complete the transfer can be tight. If there’s a delay in the sale or purchase, you may miss the window to port your mortgage.

Steps to Transfer Your Mortgage

If you’re considering porting your mortgage to a new home, here are the key steps involved:

1. Review Your Mortgage Contract: Check with your lender or review your mortgage contract to confirm whether portability is allowed, and what conditions apply.
2. Contact Your Lender: Before listing your home for sale, speak with your mortgage provider to discuss the portability process, any fees involved, and your eligibility for porting.
3. Requalify for the Mortgage: Be prepared to submit updated financial documentation to requalify for the mortgage.
4. Work with Your Realtor and Lawyer: Coordinate the timing of the sale of your old home and the purchase of the new one to ensure a smooth transition.

Alternatives to Porting Your Mortgage

If porting your mortgage isn’t an option or doesn’t make sense for your situation, here are some alternatives:

• Breaking Your Mortgage: While this may result in penalties, it can allow you to take advantage of a better rate with a new lender. Compare the penalty fees to potential savings to see if it’s worth it.
• Bridge Financing: If there’s a gap between selling your old home and buying your new one, bridge financing can provide temporary funding until you close on the new property.

Published By: Gurmaan Mortgages

M. 437-484-3273