No one wants to break their mortgage and pay a penalty, especially if you are moving to a new home and still need a mortgage. So it’s a good thing that many Banks and lenders will allow for porting a mortgage – which means moving your mortgage from your current home to the new home without breaking your mortgage – therefore avoiding a penalty.
There are a number of potential benefits to porting your mortgage including:
- Avoiding a penalty.
- Potentially, keeping your lower rate, and adding to your existing mortgage through a rate ‘blend’.
- Staying with the same lender, and potentially lowering the amount of work you need to do during your move.
However, there are also some potential disadvantages to porting a mortgage:
- If you need additional mortgage money (if you are moving, and upgrading your home), your current Bank could charge you a high rate on the additional funds you require. In other words, if going rates are 1.99% for 5 years fixed, your bank could charge you something like 2.49% for the additional funds. Its either this or pay their penalty.
- If it looks like, after paying the bank penalty to break the mortgage, that you will save with a lower interest rate – then why not? After all, it comes down to dollars and sense. If you can save more money with a lower rate, by breaking your mortgage then why port it?
- Often getting set up on a new mortgage plan can save you not just thousands, but tens of thousands of dollars over the life of your mortgage. When only dealing with your bank, it is very difficult for a homeowner to realize these savings. However, when working with Altrua Financial, the long term advice over 10 – 20 or even 30 years of home ownership and mortgages can mean savings beyond just the immediate calculation. Breaking the mortgage with your current lender, and switching to Altrua can set you on this different path.
From here, two of the most frequently asked questions when it comes to porting a mortgage are: How does porting a mortgage work with down payment? What if I am porting a mortgage to a cheaper house? Let’s address these common questions just below:
Porting a mortgage and down payment: How does it work?
When porting a mortgage, it is helpful to think – ‘how much mortgage will I need on my new home?’ In other words, after selling my existing home, and potentially paying off other debts, covering selling cost, land transfer and closing costs – how much will be left over for down payment on the new home?
Porting a Mortgage Example:
Sale Home Price: $500,000
Sale Home Mortgage: $200,000
Equity Available: $300,000
Minus selling and closing costs: $25,000 (estimate)
Net Equity available for the next home: $275,000
Cost of New Home: $750,000
Minus down payment available: $275,000
Total Mortgage needed ($750,000 – $275,000): $475,000
So in this example, the current mortgage $200,000 could be ported, but we would need to add $375,000 to have enough total mortgage to buy the new home. Again this is an example, and your own numbers can be substituted – or connect with Altrua and we are happy to help out.
If there is a surplus of equity then the mortgage will not need to be increased on the port. However, if you are looking for more mortgage because the down payment is not enough to cover the difference between the new home and the current home (as seen in the above example), then you can still port the mortgage. However you will have to increase the mortgage amount, which is called a ‘port-increase- and blend’ meaning that you keep the same mortgage, increase the mortgage amount for the new home, and blend the existing mortgage amount/ rate with a new mortgage amount/rate for one overall mortgage.
For any mortgage port calculation and for the absolute best lowest interest rate in Ontario and Canada, connect with us today and we will provide the personalized advice you need for your best savings on your move.
What if I am porting a mortgage to a cheaper house?
If porting a mortgage to a cheaper house, you may be able to use your prepayment privileges to pay down your current mortgage amount, before or during your mortgage port. In other words, many lenders will allow a port to a cheaper house and will not charge any penalty if your mortgage is within the pre payment privilege limit.
However, if your mortgage is, for example, cut in half, then you will likely face a bit of penalty however not a full breakage penalty.
It is still worth a look at whether or not it is worth breaking your mortgage to save more. Porting may be the answer, but it may not. Connect with us at Altrua to get some hard numbers on this.