Let’s say you’ve recently purchased your dream home, which you intend to live in for the next few years. You’ve taken out a fixed mortgage with a five-year term, and have settled in for the long haul. But you know what they say about the best-laid plans – changing life circumstances such as a new career, expanding family, or the need to move closer to work are just a few potential reasons you may have to relocate before you plan to.
But what about that mortgage you’ve locked into? Can you bring it with you to that new detached home, condo, or townhouse?
Possibly, if your mortgage agreement includes the ability to port or transfer your mortgage. Porting your mortgage means taking your existing home financing – including its current rate and terms – from one property to another. It’s an option available to those purchasing a new property while selling their old one.
Extend It and Blend It
Chances are you’re relocating to a bigger or upgraded property – and that means your next mortgage may be larger than your existing one. This is common, and your lender will respond by offering you a “blend and extend”. This means they’ll take the weighted average between your current mortgage rate and the new financing you’ll require at your new mortgage rate.
For example, let’s assume you have a $250,000 balance remaining on your mortgage with 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%.
Assuming you’ll require an additional $75,000 with a new five-year term, your blended rate will be 2.42% on a $325,000 mortgage.
Not All Mortgages Can Be Moved
Not all mortgage products are created equal, and some don’t allow the mortgage to be ported – some lenders offer this feature while others do not. If you know ahead of time that you’ll likely move before your mortgage term is up, it’s important to work closely with your broker and lender to ensure your mortgage offers this flexibility.
Porting your mortgage also makes the most financial sense if your current interest rate is lower than what you’re being offered by a lender for a new rate. However, if you’re being offered a more competitive mortgage rate, it makes sense to port. It’s also important to consider any penalties you may incur to port your mortgage.
Time is of the Essence When Porting Your Mortgage
Porting or transferring your mortgage can also make your new real estate deal more time sensitive. Depending on the lender, you may have a period between 30 to 120 days to port your mortgage. While a three-day window can obviously be a challenge to work with, 120 days is often ample time to complete your home sale and close on a new home purchase.
Should You Port or Transfer Your Mortgage?
While no one has a crystal ball, ensuring you have the ability to port your mortgage is a smart move when selecting your mortgage product. Not only will it give you the financial flexibility to make a real estate move in the near future, but can potentially save you thousands of dollars in mortgage prepayment fees. Ensure you discuss your options and needs closely with your mortgage professional and real estate team when choosing your best mortgage rate.