Ported Mortgages | What Are They and How Do I Get One?By Bryan in Mortgage
When the opportunity arises to move out of your current house in favor of a new one, breaking your mortgage contract to do so can be well worth the trouble. The new house might be in better condition, closer to work, or just plain better for your finances. Then again, getting your lender to terminate your contract in the middle of your mortgage term can be a hassle in and of itself. If your mortgage term is already at its end, moving shouldn’t be much of a problem, as you can simply switch lenders or stay with your current one and get a new contract with a new rate. However, what if you still have a significant amount of time left on your mortgage term? And for the matter, what if you’re content with the mortgage rate you’ve been getting up to that point?
This is certainly the case for a lot of homeowners out there. They want to move to a new house but don’t want to go through the whole process of finding and qualifying with another lender at a new rate. That’s where “porting” their mortgage can become a viable option.
How to Port Your Mortgage
Essentially, porting your mortgage means that you would be taking the mortgage contract and rate that you have with your lender presently, then transferring it from your current home to the new one that you want to purchase. Though the porting process itself might not be that easy, it’s often easier and less expensive than having to go through the mortgage application and approval procedure over again. If you don’t port your mortgage or you don’t qualify for porting (as we’ll discuss below), not only will you have to pay a penalty for breaking your mortgage contract early, but you’ll have to requalify with a new lender and negotiate a whole new contract for your new home. Then, on top of that, you could end up being stuck with a rate that’s much higher than you were paying before.
Most of the time, what homeowners are trying to avoid by porting is the penalty fee that a lender will charge them to break their contract before the actual mortgage term is over. If they manage to find a new house and move exactly when their present mortgage term is up for renewal, which can be difficult to time, they might be able to port and avoid a penalty altogether. However, since the contract-breaking penalty can be up to 3 months worth of loan and interest payments (depending on their lender’s specifications), those same homeowners could save themselves a fair bit of money by qualifying for portability. That being said, it’s important to know that qualified homeowners will still have to pay a fee to both port their mortgage and get an appraisal for their new home, but those fees will be cheaper than the penalty for ending a contract before the termination date.
Qualifying for a Ported Mortgage
First and foremost, before your mortgage can be ported, you’ll have to make sure that it actually qualifies for portability. Initially, before you signed the mortgage contract that you have now, your lender should have mentioned the option of porting it, if it’s a feature that they offer. So, if you don’t already have a mortgage, but want one that has the option of porting (for when you do want to move to another house), make sure to ask your lender about it. Remember, once the contract is signed, the terms dictated within cannot be changed on a whim. If the contract doesn’t include a portability feature, you won’t be able to renegotiate for one, if you ever decide to move. While the majority of lenders do automatically feature the portability option in all their mortgage contracts, it’s good to ask about it, just in case.
Unfortunately, depending on both your lender’s standards and the circumstances of your new mortgage, there are other situations when you might not qualify to port your mortgage. For instance, porting can also depend on the interest rate you’ve been paying on your current house. Some lenders won’t allow you to port unless you’re already paying a “fixed” rate, meaning your rate does not fluctuate at all. If you’ve been paying a “variable” rate (meaning it does fluctuate in accordance with the market premium), you may not be able to port your mortgage. In that case, you would first have to switch to a fixed rate before you would qualify for portability.
Why do different lenders offer different rates? Find out here.
Another scenario where porting also becomes a bit complicated is when the home you’re moving into is cheaper or more expensive than your current one. If your new mortgage is about 0-25% lower than your old mortgage, you may need to make a large pre-payment in order to qualify for portability with no penalty fee. If your new house is more expensive, you’ll likely need to negotiate a whole new agreement for the extra amount of money your lender would need to give you. That extra money will also come with a different, likely higher rate on it. So, if your new house is an upgrade (which is the most common scenario for homeowners looking to port), your lender might offer you a “blend and extend” option (for more information on this, click here). This means that the rate you’re paying for the remaining balance on your old home and the rate you’ll pay for your new home will be “blended” to give you a rate somewhere in between. However, this is not always appealing to homeowners, because it means that their mortgage term, regardless of how much of it they’ve gone through, will be set back to its initial length.
For more information on blended mortgages, read this.
Then, once your mortgage is portable, you yourself will have to go through another qualification process. That process will be especially thorough when your new mortgage is more expensive. Just because you’ve already established a relationship with your lender, doesn’t mean that you’re automatically entitled to access more credit than you’re already qualified for. Because of that, in order to port your mortgage (and gain an add-on if the new house is more expensive), your lender will submit you to another background screening, similar to the one you would have gone through when initially applying for the mortgage on your old house. During this screening, your income, source of employment, debt level, credit products (other loans, credit cards, etc.) and any other financial matters that define your reliability as a borrower will be inspected to determine your creditworthiness. If you do qualify, your mortgage should be ported without too much stress.
Interested in knowing how much it costs to buy a house in your city? Check this out.
An Alternative to Porting
There is an alternative to porting their mortgage that may be more appealing to some homeowners. If you want, you can also sign your mortgage over to the person who is buying your old house from you. In fact, the idea that they’ll be paying the same favorable rate that you’ve been paying can be appealing to a lot of would-be buyers, as they themselves might not otherwise qualify for a better rate with the same lender. Most banks will accept this alternative, because not only will the terms of the initial mortgage contract still be met, but they could also be gaining a new client in the process. You yourself can then be freed from your mortgage contract without having to pay that pesky penalty fee.
Is Porting Your Mortgage the Right Decision?
All this being said, before porting your mortgage, you should take the time to consider all factors and other choices you might have, as you should with any large financial transaction. And, just like almost any type of credit related situations, porting a mortgage comes with its own benefits and disadvantages.
For example, some lenders only allow 30-120 days for you to finishing porting. While 120 days would ideally be enough time to sell your house and transfer to a new one, 30 days might not be enough time at all, depending on how easy it would be to get your house sold. Who knows? You might be selling because of your current house because it’s in a bad location or is too expensive, both of which are circumstances that could cause the home to remain on the market for longer. In another situation, let’s say that you’re moving to another town or city entirely. Because of that, you might end up having to change jobs, which in turn will affect your gross yearly income. In that case, your lender might not let you port your mortgage, simply because your current employment situation is not up to their standards.
All in all, porting a mortgage is not always the right decision for every homeowner. In fact, porting tends to only be sensible when mortgage rates go up, but the homeowner is still able to negotiate for the same rate they’ve been paying with their lender. However, porting certainly does work out for some. So, if you’re thinking about porting your mortgage or are trying to find out if it’s even an option for you, discuss the situation with your lender before you start the selling and moving process. You also have to make sure your financial situation is in good standing and that any large debts you already have on your plate are taken care of before you try to port your mortgage. Then, once you’re adequately prepared, you could find yourself living in a new home but paying the same affordable rate you had before you moved.