There are many options that you’ll have to sort through when deciding which mortgage to choose, and one of these choices is whether or not it’s important for you to be able to port your mortgage when you sell your home.
Porting your mortgage
Quite simply, porting your mortgage means moving it with you when you sell your home and move to a new one. The mortgage is tied to the property, but you and your lender are essentially agreeing to sign it over to a new property.
Why?
The most obvious reason to port your mortgage is if you have a great interest rate and want to keep it for the duration of your term. But Darren Robinson, a mortgage broker in Barrie, Ontario, says that at the moment, there’s another reason that porting your mortgage is a good idea.
“It’s more to avoid the penalty than anything else, less so the rates moving around,” he says.
Without porting your mortgage, selling your home means that you’re going to end your current contract with your lender, unless you manage to time the sale of your home extremely well and it coincides with the end of your current mortgage term. And if you break your mortgage, then you’re going to have to pay a penalty. With any luck, you’re profiting from the sale of your home, but you still don’t want to have to shell out that cash to your lender if you can avoid doing it.
If you port your mortgage, you are protected against any interest rate rises, the same as you would be if you remained in your current home and hadn’t sold at all.
Is your mortgage portable?
Whether or not you want to port your mortgage may be moot if your mortgage doesn’t have a portability feature. In a lot of cases, it really only comes up with it’s time to sell.
“[Clients] will come to me and they’ll say that they’re in the process of selling their house, looking at a new mortgage, and then you go through the information and inform them of what the possibilities are, and then you also work out a financial breakdown of what works out best,” Robinson says. “Because sometimes even breaking the mortgage is more beneficial because of rates and paying out the penalty versus just moving the mortgage over.”
If you thought you might have wanted to move before the end of your current term, your mortgage broker should’ve introduced the topic of portability with you, as it’s something that you would’ve had to include when you got your mortgage; it’s not something that can be added after the papers have been signed. That being said, some lenders include portability as a feature of all of their mortgages, so your mortgage may be portable by default.
Generally speaking, if you have a variable rate mortgage, then you’re unable to port your mortgage.
“The lenders I’ve been working with will only port fixed rate mortgages; if consumers have a variable rate mortgage, the lender will make them convert the mortgage to a fixed rate and then port it,” Robinson says.
You may also have to pay fees for porting the mortgage, so check with your lender. Even if you do, they’ll probably be much less than a penalty, and you’ll still save money if your alternative is to get an entirely new mortgage with a higher interest rate.
You also don’t have to have a mortgage with one of the big banks in order to port your mortgage. All lenders have different terms and conditions for porting their mortgages, but smaller, non-bank lenders often will have porting options as well, so make sure you ask your lender or mortgage broker about all of your available options. Certain circumstances can make porting your mortgage particularly difficult, such as mortgage-holders who are in the military.
“I have to make sure that anyone I line up with a mortgage in that situation is with a national lender, so that if they have to move out of province, that they can actually port the mortgage out of the province. Because a lot of smaller trust companies won’t do that, or won’t allow that, so you get forced into a penalty,” he says.
Qualifications
Just because you want to port your mortgage doesn’t automatically mean that you can, especially if you’re getting a bigger mortgage than you had before. Porting doesn’t give you a free pass to borrow more money than you would’ve otherwise qualified for, just because you’re already “in”. Your lender will make sure, for example, that you still have a source of income, and that your debt service ratios are within their parameters. The lender will also look at the new property and make sure that the appraisal falls in line with the additional amount that you’re asking to borrow, if any. If not, you’re going to have to come up with the difference, same as you would if an appraisal came up short when you originally got the mortgage.
Given this, you want to make sure that you’re well-positioned when it comes to your employment, debt, credit, and any other issues that may impact your strength as a borrower. While your lender can’t “downgrade” your current mortgage or raise the interest rate on it, it can impact the ability to get a favourable add-on, should you need to do so for a larger mortgage.
What about mortgage insurance?
All CMHC-insured mortgage loans are eligible for porting if they were originally insured through emili, its on-line mortgage loan insurance decisioning system. There are some caveats, though, such as the borrowers on the new application must be the same borrowers as on the original approved application, and the maximum purchase price or as-improved property value must be below $1,000,000. You can also choose from a straight portability, which means that the existing mortgage balance, remaining amortization, and Loan-to-Value Ratio on a new property remains unchanged (or is lower), or a portability increase, in which there is an increase to LTV, loan amount, and/or amortization period. With the former, no new mortgage loan insurance premium is payable. With the latter, the premium payable is the lesser of the Premium on Total Loan Amount less applicable Premium Credit or the Premium on Increase to Loan Amount.
Genworth Canada and Canada Guaranty also have portability features for their mortgage insurance, with similar parameters.
Is there a downside?
Depending on how you look at it, porting your mortgage because you don’t want to pay the penalty can mean that you’re stuck with your lender for longer, which can be a bad thing if you’re looking to get a different mortgage with a different feature, or even a product that your current lender doesn’t offer.
“[Some] lenders will do a blend and extend, where they will take the current rate and what they’ll do is they’ll add the new portion of that, whatever the current rate is, but they’ll also extend that term out,” Robinson explains. “So say you’re two-and-a-half years into a five-year term, they’ll lock you into another five-year term at that point. Some lenders will actually allow you to blend your rates through to the end of your initial term. So the blend and extend is sort of a way to trap the client with the lender.”
You may also be limited in terms of how much time you have before selling your home and buying another one. Lenders vary, but the typical range for transactions to take place is somewhere betweem 30 and 120 days.
Apart from that, the upside or downside really depends on the math.
“You need to really take a closer look at the actual breakdown of what the interest cost is and whether it offsets the penalty or not,” Robinson says.
Porting your mortgage
Quite simply, porting your mortgage means moving it with you when you sell your home and move to a new one. The mortgage is tied to the property, but you and your lender are essentially agreeing to sign it over to a new property.
Why?
The most obvious reason to port your mortgage is if you have a great interest rate and want to keep it for the duration of your term. But Darren Robinson, a mortgage broker in Barrie, Ontario, says that at the moment, there’s another reason that porting your mortgage is a good idea.
“It’s more to avoid the penalty than anything else, less so the rates moving around,” he says.
Without porting your mortgage, selling your home means that you’re going to end your current contract with your lender, unless you manage to time the sale of your home extremely well and it coincides with the end of your current mortgage term. And if you break your mortgage, then you’re going to have to pay a penalty. With any luck, you’re profiting from the sale of your home, but you still don’t want to have to shell out that cash to your lender if you can avoid doing it.
If you port your mortgage, you are protected against any interest rate rises, the same as you would be if you remained in your current home and hadn’t sold at all.
Is your mortgage portable?
Whether or not you want to port your mortgage may be moot if your mortgage doesn’t have a portability feature. In a lot of cases, it really only comes up with it’s time to sell.
“[Clients] will come to me and they’ll say that they’re in the process of selling their house, looking at a new mortgage, and then you go through the information and inform them of what the possibilities are, and then you also work out a financial breakdown of what works out best,” Robinson says. “Because sometimes even breaking the mortgage is more beneficial because of rates and paying out the penalty versus just moving the mortgage over.”
If you thought you might have wanted to move before the end of your current term, your mortgage broker should’ve introduced the topic of portability with you, as it’s something that you would’ve had to include when you got your mortgage; it’s not something that can be added after the papers have been signed. That being said, some lenders include portability as a feature of all of their mortgages, so your mortgage may be portable by default.
Generally speaking, if you have a variable rate mortgage, then you’re unable to port your mortgage.
“The lenders I’ve been working with will only port fixed rate mortgages; if consumers have a variable rate mortgage, the lender will make them convert the mortgage to a fixed rate and then port it,” Robinson says.
You may also have to pay fees for porting the mortgage, so check with your lender. Even if you do, they’ll probably be much less than a penalty, and you’ll still save money if your alternative is to get an entirely new mortgage with a higher interest rate.
You also don’t have to have a mortgage with one of the big banks in order to port your mortgage. All lenders have different terms and conditions for porting their mortgages, but smaller, non-bank lenders often will have porting options as well, so make sure you ask your lender or mortgage broker about all of your available options. Certain circumstances can make porting your mortgage particularly difficult, such as mortgage-holders who are in the military.
“I have to make sure that anyone I line up with a mortgage in that situation is with a national lender, so that if they have to move out of province, that they can actually port the mortgage out of the province. Because a lot of smaller trust companies won’t do that, or won’t allow that, so you get forced into a penalty,” he says.
Qualifications
Just because you want to port your mortgage doesn’t automatically mean that you can, especially if you’re getting a bigger mortgage than you had before. Porting doesn’t give you a free pass to borrow more money than you would’ve otherwise qualified for, just because you’re already “in”. Your lender will make sure, for example, that you still have a source of income, and that your debt service ratios are within their parameters. The lender will also look at the new property and make sure that the appraisal falls in line with the additional amount that you’re asking to borrow, if any. If not, you’re going to have to come up with the difference, same as you would if an appraisal came up short when you originally got the mortgage.
Given this, you want to make sure that you’re well-positioned when it comes to your employment, debt, credit, and any other issues that may impact your strength as a borrower. While your lender can’t “downgrade” your current mortgage or raise the interest rate on it, it can impact the ability to get a favourable add-on, should you need to do so for a larger mortgage.
What about mortgage insurance?
All CMHC-insured mortgage loans are eligible for porting if they were originally insured through emili, its on-line mortgage loan insurance decisioning system. There are some caveats, though, such as the borrowers on the new application must be the same borrowers as on the original approved application, and the maximum purchase price or as-improved property value must be below $1,000,000. You can also choose from a straight portability, which means that the existing mortgage balance, remaining amortization, and Loan-to-Value Ratio on a new property remains unchanged (or is lower), or a portability increase, in which there is an increase to LTV, loan amount, and/or amortization period. With the former, no new mortgage loan insurance premium is payable. With the latter, the premium payable is the lesser of the Premium on Total Loan Amount less applicable Premium Credit or the Premium on Increase to Loan Amount.
Genworth Canada and Canada Guaranty also have portability features for their mortgage insurance, with similar parameters.
Is there a downside?
Depending on how you look at it, porting your mortgage because you don’t want to pay the penalty can mean that you’re stuck with your lender for longer, which can be a bad thing if you’re looking to get a different mortgage with a different feature, or even a product that your current lender doesn’t offer.
“[Some] lenders will do a blend and extend, where they will take the current rate and what they’ll do is they’ll add the new portion of that, whatever the current rate is, but they’ll also extend that term out,” Robinson explains. “So say you’re two-and-a-half years into a five-year term, they’ll lock you into another five-year term at that point. Some lenders will actually allow you to blend your rates through to the end of your initial term. So the blend and extend is sort of a way to trap the client with the lender.”
You may also be limited in terms of how much time you have before selling your home and buying another one. Lenders vary, but the typical range for transactions to take place is somewhere betweem 30 and 120 days.
Apart from that, the upside or downside really depends on the math.
“You need to really take a closer look at the actual breakdown of what the interest cost is and whether it offsets the penalty or not,” Robinson says.
