All About Mortgage Porting

Category: Education and Learning, First Time Buyer, Home Purchase,

Porting a mortgage means bringing the mortgage from one property to another.
This is usually done to keep a specific mortgage interest rate when the current rates are higher. Porting can only be done when a sale and a purchase (or a purchase and a sale) are completed within 30-120 days of each other (depending on lender).

Why would you want to port a mortgage?
-If you have a penalty to leave your current mortgage.
-If your current rate is better than the prevailing rates at the time of the port and you want to keep your current rate.

What if more money is needed?
There are three (12, 3) options, depending on the policies of your lender.

1. Increase the current mortgage

Your mortgage increases in value and we “blend” your current rate with the new rate available. There are two ways this can be done:

A) Blend to Term: If you started with a 5 year mortgage, and you have 3 years left, you will port over your 3 years left mortgage and increase the mortgage. Your rate will be a blend / weighted average of your current rate and the new rates. This is the most prevalent type of mortgage blend.

The blending of a rate works like this:
Let’s say you have a $500,000 mortgage and you need $800,000. The increase you need is $300,000. To put this in fractions of the total, you have 5/8th and 3/8th.

Now, your $500,000 was a 5 year term but you have 3 years left. The rate you currently have is 3.14%. However, the new 3 year rates are 5.59%. In order to get your new rate, you would have to do a weighted average of both rates:

3.14% x (5/8) + 5.59% x (3/8) = 4.06%

In this scenario, you would have a new $800,000 mortgage at a rate of 4.06% for 3 more years.

B) Blend and Extend: Some lenders allow (and some lenders require) you to blend your 3 years left mortgage with a new 5 year term. In some cases, and depending on where rates are, this could be advantageous or it could be detrimental. Your new rate here is harder to calculate because some lenders add in mortgage penalties to blend their rates. Generally, the calculation would be similar to the blend to term above, but if the rates are higher than your older rates there will be a gross up on the 3.14% (the lender would tell us what this is at the time) and it would be blended to the new 5 year fixed rate.

In this scenario, you would have a new $800,000 mortgage at an unknown rate (somewhere in between your current rate and the new 5-year rates) for 5 years.

2. Get a new mortgage segment

In this case, you will move over your current mortgage as is, and get a new mortgage “segment” under a new collateral mortgage. A collateral mortgage can be looked as an “umbrella” for mortgage segments. Your current mortgage would transfer to the new property as is, and a new mortgage “segment” would be added at the new rates. Your new mortgage segment can be whatever you like it to be: a new variable rate, a fixed rate and at any term.

In this scenario, you have a new $800,000 collateral mortgage with two segments comprised of one $500,000 mortgage with 3 years left at 3.14%, and another segment at $300,000, which you chose to have as a 5-year variable at 6.7% or a 3 year fixed at 5.59% (or anything else). In this scenario, you would have two payments: one for the old mortgage and one for the new mortgage, but both adding up to $800,000.

3. Get a new Home Equity Line of Credit (HELOC)

This strategy is similar to getting a new mortgage segment, but it allows you instead to get a HELOC under a collateral mortgage. Instead of having a new mortgage segment, you would fund your extra $300,000 using an increased ($800,000) collateral mortgage with $500,000 ported over as is, and with a $300,000 home equity line of credit. This strategy can be used in conjunction with strategy 2: you can have 2 or 3 mortgage segments as well as HELOC segments.

Why would someone want a HELOC?
HELOC’s allow you to reborrow from your home as you pay down your mortgage. They are called Re-advanceable mortgages and they allow for some advanced mortgage strategies that can increase overall net wealth.

Please check out my readvanceable mortgage page here.

What if less money is needed?
If you have to port your mortgage and you need less money, then the key here would be to see if you have any prepayment privileges and use those prior to, or in conjunction, with paying off a portion of your mortgage.

If you had a $500,000 mortgage and you only needed $400,000, and your prepayment privileges are 15% ($75,000) per year, this means that once you port, you’ll have $25K of mortgage that will be subject to mortgage penalties. The penalties could be low (1%) or high (5%). If they are very high, you may want to wait until the next year to pay off the additional $25,000, and keep a new $400,000 mortgage.

As always, porting can be complex and require proper planning. Please don’t hesitate to contact us if you need more information or would like to discuss a specific case.

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