Although many homeowners have a mortgage with a portability feature that allows them to transfer it to their new home, in many cases it doesn’t work. In the best case scenario there will be an allowance to port only 80% of the current mortgage. The math says it all: breaking one’s current mortgage is simply cheaper than porting it. Although your mortgage is portable, you may have to break their contract, pay a penalty and look for new financing.
If you are a homeowner thinking about downsizing, upgrading to a new home or looking to increase your line of credit limit this blog will shed light on the reality contrary to the common belief that a simple request to port and increase financing will get you where you want to be.
Surprising Re-qualification Conditions
In most cases when looking to port a mortgage you’ll need to be re-qualified. This means that your income and new property will be examined to confirm its current value. All of this will be done under the new regulations – not following the terms your data was judged at before.
Although you may have a better income now, there is a chance that when the time comes to port your mortgage you will be approved for less than you originally were. This is due to new restrictions and regulations that mean you will likely only port a portion of your mortgage, not all of it.
One example of many
Recently, clients arrived in our office to share their painful experience with porting their mortgage. They sold their home believing that they would be able to port their current mortgage with their bank at no questions asked. The new qualification process with new regulations left them with a mortgage that they were unable to port. They found themselves with a sold house, a new purchase that they were committed to complete and an insufficient mortgage.
Others that asked to increase the line of credit limit following the increase of their house’s value. Not only that they were denied, there was also a chance that the bank will shrink their current limit to a lower one.
You must be thinking, “How can I avoid this? What are the right questions I should ask my banker?”
The fact is that although almost all mortgages are portable, when it comes down to it, most people won’t be able to port the full amount. This is why the most Important question to ask is not if your mortgage is portable, but whether you in your current situation can be qualified to port your mortgage in full.
Furthermore, because in most cases clients move from a smaller, less expensive home to a larger one, they won’t only ask to port their current mortgage, but also to add to the loan to accommodate their new purchase. In that case the chance of disappointment can double.
It’s not only that the bank won’t approve the increase, they won’t approve a full port. In cases where additional funds will be offered, the blend between the terms and rates for the old and new will result in a more expensive cost of financing.
What actually happens is that 99% of bank clients prefer to break their current mortgage, pay the penalty and free themselves to move on to a new mortgage that has much better terms than the one they originally wanted to port.
The Bottom Line
Although the option to port a mortgage does exist, it is not applicable in most clients’ financial situations. In that case clients will need to break their contract and go for a new mortgage. Planning your exit strategy is something to consider from day one. The best mortgage choice should have the lowest penalty option in the market in the probable case that fully porting your mortgage will not work out. The bottom line is that planning ahead with a Plan B other than porting will save you lots in time, money and stress.