However choosing a fastened mortgage price will be problematic when you resolve to promote your own home and are compelled to interrupt your mortgage contract in the midst of your time period. The penalties related to breaking a fixed-rate mortgage will be very expensive.
Fortunately, many mortgage lenders permit you to keep away from penalties by porting your mortgage, which suggests carrying your present time period and rate of interest to your new property.
So, how does porting a mortgage work, and when does it make sense?
What’s porting a mortgage?
Porting a mortgage refers to taking your present mortgage and transferring it to a brand new property if you transfer. Your present mortgage price and time period are transferred alongside along with your present mortgage steadiness.
To qualify for a mortgage port, you should observe sure guidelines. For instance, you should promote your property and buy a brand new one at roughly the identical time—often inside 30 to 120 days, relying on the lender. Additionally, you may’t port greater than your present mortgage quantity. Should you want extra funds to buy your subsequent residence, the brand new cash shall be topic to present rates of interest and added to the mortgage steadiness—however extra on that later.
Most Canadian mortgage lenders supply portability as an choice, however not all do. That’s why it’s vital to seek out out if a potential lender presents this characteristic earlier than you’re taking out a brand new mortgage. In spite of everything, you by no means know when your plans may change and you want to promote your property earlier than your mortgage time period ends.
When does it make sense to port a mortgage?
There are two most important causes you’d wish to port your mortgage as a substitute of breaking your contract and beginning recent. The primary is to maintain your present rate of interest if it’s decrease than present mortgage charges. The second is to keep away from breaking your mortgage early and incurring a expensive penalty.
“Porting is usually a good suggestion in case your present fastened mortgage price is decrease than present charges and also you’re shifting earlier than your mortgage maturity date,” explains Lyle Johnson, a Winnipeg-based mortgage dealer. “By maintaining your present mortgage, you keep away from the prepayment penalties that may apply when you break your mortgage earlier than its maturity date, whereas maintaining your low fastened price.”
What a couple of variable-rate mortgage? Most variable mortgages don’t supply a portability characteristic. (Be aware, nevertheless, that you’ll have the choice to transform to a hard and fast price first, after which port.) Should you resolve to promote your own home earlier than your time period expires, you’ll possible want to interrupt your contract and procure a brand new mortgage for the brand new property. That mentioned, the penalty for breaking a variable mortgage is often equal to 3 months’ curiosity in your excellent steadiness, which is usually lower than a fixed-rate mortgage penalty.