What’s porting a mortgage in Canada—and when do you have to do it?

However choosing a fastened mortgage price might be problematic in the event you determine to promote your home and are pressured to interrupt your mortgage contract in the course of your time period. The penalties related to breaking a fixed-rate mortgage might be very pricey. 

Fortunately, many mortgage lenders permit you to keep away from penalties by porting your mortgage, which suggests carrying your current time period and rate of interest to your new property. 

So, how does porting a mortgage work, and when does it make sense? 

What’s porting a mortgage? 

Porting a mortgage refers to taking your present mortgage and transferring it to a brand new property whenever you transfer. Your current mortgage price and time period are transferred alongside together with your present mortgage stability. 

To qualify for a mortgage port, you should observe sure guidelines. For instance, you should promote your house and buy a brand new one at roughly the identical time—normally inside 30 to 120 days, relying on the lender. Additionally, you possibly can’t port greater than your present mortgage quantity. Should you want further funds to buy your subsequent dwelling, the brand new cash will likely be topic to present rates of interest and added to the mortgage stability—however extra on that later. 

Most Canadian mortgage lenders provide portability as an choice, however not all do. That’s why it’s vital to search out out if a potential lender gives this characteristic earlier than you are taking out a brand new mortgage. In spite of everything, you by no means know when your plans may change and it’s worthwhile to promote your house earlier than your mortgage time period ends.

When does it make sense to port a mortgage?

There are two foremost causes you’d need to port your mortgage as a substitute of breaking your contract and beginning contemporary. The primary is to maintain your current rate of interest if it’s decrease than present mortgage charges. The second is to keep away from breaking your mortgage early and incurring a pricey penalty. 

“Porting is often a good suggestion in case your current fastened mortgage price is decrease than present charges and also you’re transferring earlier than your mortgage maturity date,” explains Lyle Johnson, a Winnipeg-based mortgage dealer. “By preserving your current mortgage, you keep away from the prepayment penalties that might apply in the event you break your mortgage earlier than its maturity date, whereas preserving your low fastened price.” 

What a few variable-rate mortgage? Most variable mortgages don’t provide a portability characteristic. (Notice, nonetheless, that you could have the choice to transform to a set price first, after which port.) Should you determine to promote your home earlier than your time period expires, you’ll possible want to interrupt your contract and procure a brand new mortgage for the brand new property. That stated, the penalty for breaking a variable mortgage is normally equal to a few months’ curiosity in your excellent stability, which is commonly lower than a fixed-rate mortgage penalty.