Porting your mortgage, what is it exactly?
Are you selling a home and buying another? Do you have an existing mortgage balance and term? Chances are you are in a position to port your mortgage but what is a port to begin with? This is a very common question but one that is often not fully explained or easily understood.
The reason for porting your mortgage in the first place implies that there is a mortgage agreement in place (between you and the lender) for a mortgage amount, term, and interest rate that has not yet expired. That agreement must be honored by both sides or there may be penalties to be paid for breaking it. When selling and buying a new home porting allows you to preserve that original agreement and adjust your mortgage to suit your new requirements. There are 3 different types of ports each one different from the last. Your mortgage can be a straight port, port-increase, or port-decrease.
The simplest is the straight port, in which you are moving your mortgage from one property to another with no change in the mortgage particulars. Once your home is sold your mortgage must be paid out from the proceeds of the sale. When you close on your new home you will need a new mortgage to purchase the home. If you have enough down payment you may be able to borrow the exact same amount of funds as you had remaining on your mortgage when you sold your home. The rate, remaining term, and mortgage amount stay the same, no penalties are involved and the process is straightforward as there is no new money involved. Here you are continuing your original mortgage agreement with the bank with no change other than the property involved hence the term straight port. This is an easy approval for the lenders as far as qualification guidelines go. As long as you have been paying your mortgage on time and your financial/credit situation has not drastically changed since you got your original mortgage you should be approved without much fuss.
The second option is a port increase where you need extra funds from the lender for the new home, (this is usually the case if you are buying a more expensive home and have less down payment). In this situation the remaining mortgage term is moved to the new property, the mortgage amount is increased accordingly and finally the interest rate is blended with today`s available rates. If the rates available today are lower than your interest rate then your rate will be blended and reduced, if the rates are higher today your rate will be blended and increased. Penalties are not a concern with the port increase because you are still honoring the original mortgage terms just combining them with new funds and determining a new blended rate. With the request for new funds you must be able to qualify for the higher mortgage amount.
The final option is the port-decrease. In this case you need less mortgage for the new property purchase than the remaining mortgage amount you currently have. Your mortgage term, and rate get moved to the new property only the mortgage amount is reduced. There may however be a penalty involved in this reduction of mortgage balance. If you are reducing your mortgage balance by greater than the allowable yearly prepayment options that you have signed for on your mortgage documents you may be charged a penalty for the extra reduction.
But wait…there’s more!
There is one more option that one can consider. Let’s say your bank is not offering you a good rate on your port or your current mortgage rate is much higher than today’s rates then you can always consider a new mortgage at the same or another lender at full discount. This option often saves you more money over the remaining term than your initial penalty to break. Calculations often tell the tale if it is worth it and a licensed Mortgage Agent can do those calculations for you. Your bank may not want to do the calculations for you because they don’t want to lose you but if they are not willing to make it worth your while to stay why should you pay more money in mortgage interest than you have to?
Porting is a great tool when the benefit is to you the mortgage holder, when it becomes more costly to port than it does to break your mortgage and/or switch lenders then your options are once again clear.
Centum One Financial Corp
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