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How to Determine If You Meet the Requirements for Mortgage Porting?

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Congratulations! You've found your dream home and are ready to make the exciting leap to a new address. 

But what about your mortgage? 

While packing boxes and coordinating movers, navigating the world of mortgage porting can seem daunting. 

This post will equip you with the knowledge needed to determine if porting your existing mortgage in the Canadian market.

What is Mortgage Porting?

Mortgage porting, also known as transferring your mortgage, allows you to move your current mortgage interest rate and terms to your new home, instead of applying for a completely new mortgage. 

It can be beautiful if you secure a favorable rate on your original mortgage, especially in a rising interest rate environment.

How Does Porting a Mortgage Work?

Porting a mortgage involves transferring your existing mortgage deal from one property to another when you move home. 

Here's how it typically works:

  • Assessment: When you decide to move, you approach your current lender to see if your mortgage is portable. They will assess your financial situation to ensure you can afford the mortgage on the new property.
  • Property Valuation: The lender will conduct a valuation of the new property to ensure its value aligns with its criteria for lending. This valuation helps determine the maximum amount they're willing to lend on the new property.
  • Loan Transfer: If approved, your existing mortgage deal, including the outstanding balance, interest rate, and remaining term, is transferred to the new property. This means you continue with the same mortgage terms as before.
  • Additional Borrowing: If the new property is more expensive, you may need to borrow additional funds. In this case, the lender may offer you a new mortgage deal for the additional amount, which will be separate from the ported mortgage.
  • Fees: While porting a mortgage can save you from early repayment charges on your existing deal, there may still be fees associated with the transfer, such as valuation fees or arrangement fees for any additional borrowing.
  • Finalization: Once all necessary assessments are complete and any additional borrowing is arranged, the mortgage porting process is finalized, and you can proceed with purchasing the new property.

Eligibility Criteria: A Closer Look

While porting offers several advantages, it's not guaranteed for everyone. Lenders in Canada have specific criteria to ensure financial stability and suitability for the new property. 

Here's a breakdown of the key factors that influence your eligibility for mortgage porting:

  • Original Mortgage Terms: Review your original mortgage agreement to see if porting is even an option. Some lenders may offer it only for specific mortgage types (fixed-rate vs. variable-rate) or within a certain time frame after taking out the loan.
  • Financial Situation: Your current financial health is a crucial factor. Lenders will reassess your income and employment status to ensure you can still afford the mortgage payments. Recent job changes, income reductions, or taking on additional debt can negatively impact your eligibility.
  • Loan-to-Value Ratio (LTV): This ratio compares your remaining mortgage balance to the value of your new property. Most lenders in Canada have maximum LTV limits for porting mortgages. For instance, if your remaining mortgage balance is $300,000 and your new home appraises for $500,000, your LTV would be 60%. If your lender's maximum LTV for porting is 75%, you might need to bring a larger down payment to reduce the loan amount.
  • New Property Characteristics: The type and location of your new home can influence eligibility. Lenders may have restrictions on property types (e.g., not porting to a commercial property) or location (e.g., properties in remote areas with limited resale potential)
  • Credit Score: Maintaining a good credit score since taking out your original mortgage is essential. Missed payments, defaults on other debts, or a significant decrease in your credit score can raise red flags for lenders and hinder your porting application.

What is The Application Process for Porting?

If you believe you meet the eligibility criteria, it's time to formally initiate the porting process with your lender. 

Here's a general step-by-step guide:

  1. Contact Your Lender: Inform your mortgage lender of your intention to port your mortgage to your new property.
  2. Gather Documentation: Compile necessary documents like your new home purchase agreement, proof of income, and updated bank statements.
  3. Property Valuation: The lender typically arranges a new property valuation to determine the LTV ratio for the ported mortgage.
  4. Application Review: The lender will assess your application based on the current eligibility criteria and the specifics of your situation.
  5. Approval and Fees: If approved, you'll receive a new mortgage agreement with details of the ported mortgage, including any potential porting fees.

Additional Considerations

  • Portability Fees: Be aware that lenders may charge fees for processing the porting application. These fees can vary, so factor them into your overall financial calculations.
  • Interest Rate Changes: While you retain your original interest rate with porting, you might be able to negotiate a better rate with your current lender during the application process.
  • Early Repayment Charges (ERCs): If your original mortgage has Early Repayment Charges (ERCs) in place, porting might trigger these penalties depending on the remaining term of your mortgage. Review your original agreement to understand any potential ERC implications.
  • Alternative Options: If porting isn't feasible, explore other options like refinancing your existing mortgage or applying for a new mortgage with a different lender for your new property.

The Advantages When You Port Your Mortgage

Porting your mortgage offers several benefits, making it an attractive option for homeowners who are moving to a new property:

  • Avoiding Early Repayment Charges: One of the significant benefits of mortgage porting is the ability to avoid early repayment charges on your existing mortgage deal. Instead of paying hefty fees for ending your current mortgage early, you can transfer it to the new property seamlessly.
  • Maintaining Favorable Terms: If you have a favorable interest rate or mortgage terms on your existing mortgage, porting allows you to retain those terms for the remaining term. This can be especially advantageous if interest rates have risen since you took out the original mortgage.
  • Saving Time and Hassle: Porting your mortgage eliminates the need to go through the application process for a new mortgage deal. Since your existing mortgage is transferred to the new property, you save time and effort that would otherwise be spent on paperwork and assessments.
  • Consistency in Payments: By keeping your mortgage terms consistent, porting ensures that your monthly mortgage payments remain the same. This consistency can help with budgeting and financial planning, providing stability during a period of transition.
  • Flexible Financing Options: If you need to borrow additional funds for the new property, some lenders offer flexible financing options as part of the porting process. This allows you to access additional borrowing while still benefiting from the terms of your existing mortgage.\
  • Potential Cost Savings: Porting your mortgage can result in cost savings compared to taking out a new mortgage deal, especially if you're able to avoid early repayment charges and secure favorable interest rates.

Making an Informed Decision

Ultimately, deciding to port your mortgage requires careful consideration of your financial situation, new property details, and the terms offered by your lender. Comparing the ported mortgage interest rate to current market rates and factoring in potential porting fees will help you make an informed decision.

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