What is Porting a Mortgage?

The current housing market presents a major challenge for buyers in the form of high-interest rates. Those who have purchased homes recently are well aware that interest rates have skyrocketed since 2020, more than doubling. If you opt for a 30-year fixed-rate mortgage, you can expect an average interest rate ranging from 6% to 7%.

Understandably, if you are in need of relocation, the thought of giving up your low, locked-in interest rate for a new rate that could be twice as high can be financially overwhelming. However, there is a solution known as "mortgage porting" that allows you to transfer the terms of your existing mortgage to a new property. But how does this process work exactly, and what are the requirements for qualification? To help you make an informed decision about porting your mortgage, here is some expert advice that you should consider.

What is Porting a Mortgage?

Essentially, porting a mortgage is the process of transferring your existing mortgage to a new property. This carries over the existing terms of your loan, including the interest rate and payment plan.

However, it's not as simple as just shifting your loan to your new house. More often than not, porting a mortgage requires you to reapply for your existing loan, despite having already been approved once.

The potential snag? You need to ascertain if both you and your mortgage meet the necessary eligibility criteria.

Is your mortgage eligible?

The prospect of saving a significant amount of money throughout the duration of a new loan can be a game-changer for those currently in the market for a home and facing high-interest rates. However, it is crucial to carefully consider the option to port your mortgage before delving too deeply into your search for a new home.

According to financial advisor James Allen from Billpin, eligibility for mortgage porting can vary greatly, leaving you uncertain about what you might encounter. Some lenders may allow it, while others may not, and it's important to note that not all mortgages are portable.

For instance, most variable-rate mortgages, which are loans with fluctuating interest rates, cannot be ported at all.

Furthermore, your eligibility for porting your mortgage is also influenced by the amount of your mortgage in relation to the price of the home you intend to purchase.

"You won't be able to port your mortgage if you're downsizing to a less expensive home and don't require the full existing mortgage," explains Dennis Shirshikov from real estate investment company Awning.com.

However, if you are moving into a home with an asking price equal to or higher than your current home loan, there is a possibility that you may be able to port your mortgage.

"In cases where the mortgage you need for the new property is larger, your lender might offer you a 'blend and extend' option," suggests Allen. "This involves blending your old and current rates to provide you with a new rate that reflects both."

Are you eligible?

It's important to take into account if you, as a borrower, qualify for porting, suggests Shirshikov. To be eligible, you typically need to demonstrate a stellar repayment history and meet your lender's affordability requirements for the new property.

In most cases, your lender will require you to fill out a brand new loan application, which will involve thorough affordability assessments and a credit check for both yourself and any co-applicant.

Furthermore, certain lenders might impose additional conditions, such as requesting you to increase your mortgage amount by borrowing against the equity in your current home, especially if the new property you're considering is more expensive.

When is porting a good idea?

Transferring your mortgage can be a smart move if you previously obtained more advantageous loan terms and cannot obtain similar ones without porting.

According to Shirshikov, porting becomes highly beneficial when your existing mortgage rate is considerably lower than the prevailing market rates. Nonetheless, if the current market rates are lower or equivalent, it might be worthwhile to consider a new mortgage instead.

How to port your mortgage?

To begin the mortgage porting journey, it is essential to initiate a conversation with your existing mortgage team. Shirshikov advises, "Take the time to communicate with your current lender and confirm the feasibility of porting while gaining a comprehensive understanding of the entire process. It is crucial to consider all potential costs involved, such as penalties or fees, to ensure that it aligns with your financial goals."

While lenders generally make eligibility determinations promptly, it is important to note that the processing time may still span over several weeks. Therefore, it is highly recommended to commence the process well in advance.

"The duration of the porting process may vary based on factors like the state of the real estate market and your individual circumstances. However, typically it synchronizes with the closing date of your new property," explains Shirshikov.

Consider This

Before making a decision to transfer your mortgage, it is crucial to thoroughly explore the market and ensure that your existing interest rate remains the most favorable option available.

Considering the specific type of loan you require, the loan amount, and any significant life changes that may have occurred since your last mortgage application, it is possible that there are more advantageous rates offered in the market. Ultimately, porting a mortgage is a task that demands a similar amount of effort as applying for a new one, hence it is essential to ensure that the deal is truly worth pursuing.