However choosing a fastened mortgage charge could be problematic if you happen to resolve to promote your own home and are compelled to interrupt your mortgage contract in the course of your time period. The penalties related to breaking a fixed-rate mortgage could be very expensive.
Fortunately, many mortgage lenders permit you to keep away from penalties by porting your mortgage, which suggests carrying your current 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 whenever you transfer. Your current mortgage charge and time period are transferred alongside along with your present mortgage steadiness.
To qualify for a mortgage port, you need to comply with sure guidelines. For instance, you need to promote your house and buy a brand new one at roughly the identical time—often inside 30 to 120 days, relying on the lender. Additionally, you possibly can’t port greater than your present mortgage quantity. When you want extra funds to buy your subsequent house, the brand new cash can be topic to present rates of interest and added to the mortgage steadiness—however extra on that later.
Most Canadian mortgage lenders provide portability as an choice, however not all do. That’s why it’s vital to seek out out if a potential lender presents this function 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 must promote your house earlier than your mortgage time period ends.
When does it make sense to port a mortgage?
There are two principal causes you’d need to port your mortgage as a substitute of breaking your contract and beginning recent. The primary is to maintain your current 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 current fastened mortgage charge 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 protecting your current mortgage, you keep away from the prepayment penalties that might apply if you happen to break your mortgage earlier than its maturity date, whereas protecting your low fastened charge.”
What a few variable-rate mortgage? Most variable mortgages don’t provide a portability function. (Be aware, nonetheless, that you will have the choice to transform to a set charge first, after which port.) When you resolve to promote your own home earlier than your time period expires, you’ll doubtless want to interrupt your contract and acquire a brand new mortgage for the brand new property. That mentioned, the penalty for breaking a variable mortgage is often equal to a few months’ curiosity in your excellent steadiness, which is usually lower than a fixed-rate mortgage penalty.