Can You Port a Mortgage to a Cheaper House in Ontario?
Have you recently found yourself in a position to reevaluate your housing needs? One potential solution for those looking to move to a less expensive property is mortgage porting. Mortgage porting allows borrowers to transfer their existing mortgage to a new home, providing an opportunity to maintain favorable loan terms while adjusting housing costs. Whether prompted by changing personal circumstances or the desire for a more affordable living situation, understanding the ins and outs of mortgage porting is crucial for Ontario homeowners.
Understanding Mortgage Porting
Some, but not all, lenders offer mortgage porting. Porting allows homeowners to transfer their mortgage from one property to another. This option helps borrowers retain their existing mortgage terms, like interest rates, payment schedule, and amortization periods, when moving to a new home.
Homeowners typically choose to port their mortgage during significant life changes. Common life changes include downsizing after children leave home or relocating for work. On the other hand, some homeowners may simply seek a better financial arrangement. Porting is an effective solution for those wishing to avoid the penalties associated with breaking their existing mortgage contract.
Eligibility for Mortgage Porting in Ontario
Not every mortgage is portable, and eligibility can vary widely among lenders. Here are some common criteria that may be required:
Credit Score: Lenders will assess your creditworthiness. A higher credit score often improves the chances of successful porting.
Loan-to-Value Ratio (LTV): This ratio compares the amount of the mortgage to the appraised value of the new property. Typically, lenders prefer an LTV that is under 80%.
Type of Mortgage: Only certain types of mortgages (like fixed-rate or variable-rate) may be eligible for porting. Verify with your lender to know what options are available to you.
Can You Port a Mortgage to a Cheaper House?
Generally yes, homeowners can port a mortgage to a cheaper house. That being said, your lender may have specific rules in place that make porting to a cheaper house difficult. For instance, while most lenders do allow porting to a less expensive property, you must first check their policies to avoid unexpected penalties.
When moving to a cheaper home, homeowners must consider how the new mortgage amount might be impacted. If the ported mortgage is less than the original outstanding balance, they may need to increase the loan amount or pay a lump sum to cover the difference. This is one example of a scenario where being privy to the lender’s terms is essential.
Implications of Porting to a Cheaper House
Benefits of Porting to a Cheaper Home
Preserving Favorable Terms: With mortgage porting, Homeowners can maintain a lower interest rate, better amortization schedules, and more. This is especially beneficial when being faced with rising interest rates. Porting your mortgage can ensure you keep favorable terms, even if they aren’t available in the current market.
Avoiding Penalties: Most mortgage lenders have terms and conditions that involve penalties if the contract is broken. This can be extremely limiting if you find yourself wanting to relocate before your contract has been fulfilled. Porting allows you to relocate while still keeping your contract intact, avoiding any unwanted prepayment penalties.
Drawbacks of Porting to a Cheaper Home
Top-Up Mortgage: If the new home’s purchase price is less than the original mortgage, homeowners will likely need a top-up mortgage to cover the shortfall. A top-up mortgage means you will be borrowing against your home’s equity, so it’s best to maintain a positive relationship and repayment reputation with your lender in order to be approved.
Loss of Certain Features: Although your original mortgage is maintained with porting, that doesn’t mean the transition is completely seamless. Some mortgage features, such as prepayment privileges, may be lost when switching to a new property. Inquire with your lender to know what terms may be impacted when porting your mortgage.
The Process of Porting a Mortgage
Here’s a simple step-by-step guide on how to port a mortgage in Ontario:
Check Your Mortgage Terms: Review the specific details of your existing mortgage agreement. Not all contracts allow porting, so make sure you have the ability to port your mortgage before taking action.
Consult Your Lender: Before making any decisions, speak to your lender about your intentions and their specific requirements. They may be able to provide important information and clarity on the process, the risks, and drawbacks associated with porting.
Get Your New Property Appraised: Your lender will usually request an appraisal of the new home to determine its value and if it meets the porting criteria.
Submit Required Documentation: This may include proof of income, credit assessment, and details about the new property.
Finalize the Transfer: Once approved, work with your lender and a real estate lawyer to finalize the porting process.
When to Port vs. Get a New Mortgage:
Despite being faced with penalties, there may be some instances where applying for a new mortgage is more beneficial than porting your current one. Here’s a quick and easy guideline to help you determine which path is best for you.
You should port your mortgage when:
You have favorable mortgage terms.
You want to avoid associated penalties.
The price of the new property is within your current mortgage limits.
You should get a new mortgage when:
Market conditions have improved since you took out your original mortgage.
You are not satisfied with your current lender.
You want to change to a different mortgage product.
Have you considered porting your mortgage? Do you have questions about the process? For personalized advice tailored to your situation, don’t hesitate to reach out to one of our financial advisors. They empower our clients with the knowledge they need to make informed decisions. Get Expert Advice today.
Porting a mortgage to a cheaper house in Ontario can be a practical solution for many homeowners looking to adjust their financial commitments while retaining favorable borrowing terms. Keep in mind, however, that each situation is unique. Your decision to port your mortgage should be based on careful evaluation of your personal circumstances and options. Remember to reach out to one of our advisors if you have any questions or concerns, or simply want expert guidance.