When you move into a new home, you may think you’ll stay there forever. Or at least until your mortgage term is up. But the truth is that most people do not stay in one place for the full 25-year amortization. And a large portion of Canadians who move have to break their mortgage to do so.
But breaking a mortgage is costly. Depending on the type of mortgage you have, you could be facing a stiff penalty. You might also have to deal with higher mortgage rates after a recent rate increase. The best mortgage rates change constantly, so you could be facing a higher monthly payment on your new home and a hefty penalty.
Instead of doing that, you should consider porting your mortgage when you move. You can only port your mortgage if you buy a new home at the same time you sell your old one, and your lender also has to let you – but the savings are more than worth it.
Try Not To Break Your Mortgage
Unless you have to, it’s almost always cheaper to wait until your term expires to sell your home. Extenuating circumstances may mean you just have to take the financial hit, but if you can wait, you should.
The penalty you have to pay depends on the type of mortgage you have. Fixed-rate mortgages are more expensive to break than variable-rate mortgages, and open mortgages have no penalty at all (but come at higher interest rates).
You can read more about the different types of penalties here.
Whether or not you can port your current mortgage depends on your current lender. Some don’t allow it, and some do.
If you got a non-portable mortgage, there’s nothing you can do. It’s very unlikely the lender will decide to let you port after signing a contract that says you can’t. If, on the other hand, your lender does allow porting, it’s a fairly straight-forward process to port your mortgage.
How to port your mortgage
Just like with your current mortgage, most of the work is done by your mortgage broker, or mortgage specialist if you’re working with a bank.
You’ll be asked to provide much of the same documents you had to provide when you first got your mortgage. You may also be asked to provide information about your current property.
In most cases, porting your mortgage is cheaper than breaking your mortgage contract and getting a new one, but there are some exceptions. It’s usually a good idea to port your mortgage if:
The biggest benefit of porting your mortgage is called the “blend-and-extend.” That’s a process that your lender will use to give you a new mortgage term based on your current term and interest rate, and a comparable new mortgage.
What your new interest rate will be depends on how many months are remaining in your term, and the difference between your old rate and the current best mortgage rates. The more time is remaining in your original term, the closer the interest rate will be to your old rate, and vice versa.
The penalties for breaking fixed-rate mortgages are especially steep thanks to a calculation known as the interest rate differential (IRD).
Variable-rate mortgages use a simple three months’ interest calculation to determine your penalty, which can be a lot lower than a fixed-rate penalty.
When you’re buying a new home, the last thing on your mind is how you’ll get out of your mortgage. But getting a mortgage with the option to port can save you thousands of dollars later if something changes in your life that requires a move.