Finding the lowest mortgage rate is definitely an important part of mortgage shopping, but it’s not the only mortgage feature worthy of your attention. The sale of your home could evoke three crucial mortgage features: mortgage penalty fees, assumability, and portability. Today, we will focus on mortgage portability.
What is mortgage portability?
To port your mortgage is to transfer the debt you owe on one property, to another property.
When would you need to port your mortgage?
If you have sold your current house and purchased a new one. Suppose you acquired a 5-year fixed mortgage loan to purchase a condo unit and after three years of condo-living, you feel ready to transition into a single-family home. At that point, you would only be three years into the five-year contract. What happens to your 5-year fixed mortgage contract?
The portability feature would allow you to transfer that mortgage and its remaining balance to your new property.
If your mortgage is not portable, you may be forced to pay the penalty for breaking your mortgage contract early, in which case, you can use a mortgage penalty calculator to estimate the amount you owe. The down-side with taking this path is that it may end up costing you thousands of dollars, especially in periods of decreasing interest rates.
The ideal condition to port a mortgage is when your current mortgage rate is lower than what is available on the market. For example, if you locked in a 5-year fixed rate at 3.09 per cent three years ago, and the best 5-year fixed rate today is 4 per cent - it is advantageous for you to keep the 3.09 per cent fixed rate. Because a lower interest rate reduces your monthly mortgage payment and the total amount of interest you pay.
Keep in mind that mortgage portability is a feature that may not be available with every mortgage. Earlier this year, BMO offered a special 5-year fixed Low Rate mortgage product at 2.99 per cent that was fully closed, where mortgage portability was not available. To learn more about the various features your mortgage has, including portability, it’s best to consult an experienced mortgage broker.