Definition:
Mortgage portability allows homeowners to transfer their existing mortgage to a new property without having to break the loan and pay any penalties. This feature is especially useful for borrowers who are looking to move to a new home but want to keep their current mortgage terms, including the interest rate, intact.

How mortgage portability works

When you move to a new home, mortgage portability allows you to “take” your current mortgage with you. The process typically involves:

• Transferring the mortgage balance: Your existing mortgage balance is transferred to the new home, and the same interest rate and terms apply, avoiding penalties for breaking the loan early.
• Reapplying for the mortgage: While the mortgage itself is portable, you’ll still need to reapply for it. The lender will assess whether your financial situation has changed and whether the new home qualifies for the same terms.
• Top-up options: If the new home is more expensive than the one you’re selling, you may have the option to “top-up” your mortgage with additional financing.

Benefits of mortgage portability

There are several reasons why homeowners choose to use mortgage portability when moving:

• Avoid prepayment penalties: One of the most significant advantages is the ability to avoid costly prepayment penalties, which can be substantial if you break your mortgage before the term ends.
• Keep favourable mortgage terms: If you have a great interest rate, portability allows you to keep it, even if rates have risen since you initially secured the mortgage.
• Simplified moving process: The portability feature can simplify the transition between homes, as it removes some of the stress of obtaining a new mortgage and dealing with additional closing costs.

Limitations of mortgage portability

While mortgage portability can be a useful tool, there are some limitations to keep in mind:

• Property restrictions: Not all properties may qualify for mortgage portability. For example, the new property must meet the lender’s criteria, which could include factors like property value, location, or type of home.
• Changes in mortgage terms: If your current home is worth less than the mortgage balance or if your financial situation has changed, you may face challenges in qualifying for portability.
• Fees and costs: While you avoid prepayment penalties, there may still be fees involved in transferring your mortgage, such as administrative costs or a new appraisal fee.

When to consider mortgage portability

Mortgage portability can be a good option if:

• You have a low-interest rate: If you secured a low rate when you first took out your mortgage and don’t want to risk higher rates on a new loan, portability can help you keep that rate.
• You plan to stay in your new home long-term: If you’re moving to a home you plan to stay in for many years, portability allows you to lock in favorable terms without worrying about changing mortgage rates.
• You want a hassle-free transition: If you’re looking for a simpler way to move, portability can help you avoid the complexities of applying for a new mortgage.

How to apply for mortgage portability

To apply for mortgage portability, you typically need to:

• Check your current mortgage agreement: Review your mortgage terms to ensure portability is an option with your lender.
• Consult with your lender: Reach out to your current lender to confirm that your mortgage is portable and understand any requirements or conditions that apply.
• Provide necessary documentation: Your lender may require updated information, including proof of income, credit checks, and details of the new property you intend to purchase.

Getting professional advice

If you’re considering mortgage portability, it can be helpful to speak with a mortgage broker or financial advisor. They can explain your options, help you understand the requirements, and guide you through the process to ensure you’re making the best decision for your financial situation.

Last modified: November 11, 2024