What is porting a mortgage in Canada—and when should you do it?

But picking a fixed mortgage rate can be problematic if you decide to sell your house and are forced to break your mortgage contract in the middle of your term. The penalties associated with breaking a fixed-rate mortgage can be very costly. 

Thankfully, many mortgage lenders allow you to avoid penalties by porting your mortgage, which means carrying your existing term and interest rate to your new property. 

So, how does porting a mortgage work, and when does it make sense? 

What is porting a mortgage? 

Porting a mortgage refers to taking your current mortgage and transferring it to a new property when you move. Your existing mortgage rate and term are transferred along with your current mortgage balance. 

To qualify for a mortgage port, you must follow certain rules. For example, you must sell your home and purchase a new one at roughly the same time—usually within 30 to 120 days, depending on the lender. Also, you can’t port more than your current mortgage amount. If you need additional funds to purchase your next home, the new money will be subject to current interest rates and added to the mortgage balance—but more on that later. 

Most Canadian mortgage lenders offer portability as an option, but not all do. That’s why it’s important to find out if a prospective lender offers this feature before you take out a new mortgage. After all, you never know when your plans might change and you need to sell your home before your mortgage term ends.

When does it make sense to port a mortgage?

There are two main reasons you would want to port your mortgage instead of breaking your contract and starting fresh. The first is to keep your existing interest rate if it’s lower than current mortgage rates. The second is to avoid breaking your mortgage early and incurring a costly penalty. 

“Porting is typically a good idea if your existing fixed mortgage rate is lower than current rates and you’re moving before your mortgage maturity date,” explains Lyle Johnson, a Winnipeg-based mortgage broker. “By keeping your existing mortgage, you avoid the prepayment penalties that would apply if you break your mortgage before its maturity date, while keeping your low fixed rate.” 

What about a variable-rate mortgage? Most variable mortgages do not offer a portability feature. (Note, however, that you may have the option to convert to a fixed rate first, and then port.) If you decide to sell your house before your term expires, you’ll likely need to break your contract and obtain a new mortgage for the new property. That said, the penalty for breaking a variable mortgage is usually equal to three months’ interest on your outstanding balance, which is often less than a fixed-rate mortgage penalty. 

How to port a mortgage

Let’s assume you are three years into a five-year fixed-rate mortgage and have a mortgage balance of $200,000 at an interest rate of 1.70%. You love your home, but you’ve just been offered a promotion at work, and the new job requires you to move to a new city. 

You can break your current mortgage when you sell your home, but this will result in a penalty and having to take on a brand-new mortgage at a much higher interest rate. You heard somewhere that porting your mortgage might be an option, and you decide to speak to your mortgage lender. 

Here are the steps to follow: 

1. Discuss your options with your mortgage lender 

Your first step is to find out if your lender offers mortgage portability, and if so, what its policies are. For example, most lenders require the closing dates of your home sale and next home purchase to fall within 30 to 120 days of each other to qualify for a port. 

You’ll also need to determine whether a port makes sense financially. If your existing mortgage rate is lower than current rates (which is often the case right now), then a port is likely your best move. However, if your rate is higher than current rates, you may be better off breaking your mortgage and paying the penalty to secure a lower interest rate.

2. Submit a mortgage application 

Even though you are porting your existing mortgage to a new property, you still need to re-qualify for the mortgage, because a ported mortgage constitutes a new contract with your lender. Your lender will need to verify your income, check your credit history and assess your ability to service the debt. It will also want to assess the value of the home you’re purchasing; the lender may or may not require a home appraisal to do so.

Remember that you will have to provide a down payment for the new home purchase. You may use the net proceeds from the sale of your home for your down payment. However, if the closing date of your purchase happens prior to your sale closing date, you may need to obtain temporary bridge financing. This is something you will want to discuss with your lender upfront. 

3. Complete your home purchase and sale transactions in a timely fashion

Once you’ve been approved for a mortgage port, you’ve reached purchase and sale agreements, and you’ve made plans for the down payment, you can work with your mortgage broker or lender to ensure that all purchase and sale conditions are met and that both transactions close within your lender’s portability window. 

Porting a mortgage to a higher-value property

What happens if the mortgage on your new home is larger than the mortgage you wish to port? Is it possible to port a mortgage to a more expensive property? According to Johnson, the answer is yes. 

“Increased ports are available when you want to keep your mortgage but need additional funding for your next home purchase,” he says. “However, you might have to meet the requirements of a bigger loan and accept a higher interest rate for the extra funds borrowed.” 

With today’s interest rates, this is something that is increasingly common, he adds. And when a buyer does this, it’s common to end up with a blend-and-extend mortgage, which we’ll discuss below. 

Before porting your mortgage to a higher-value property, consider the added costs of a fresh down payment, higher mortgage payments and higher land transfer tax.

Porting a mortgage to a lower-value property

Just like you can port a mortgage to a more expensive property, Johnson says that you can also port to a lower-value property. However, when you don’t need as much, “decreased ports let you take only the portion of your mortgage you need.” In that case, “it’s likely that you’ll have a prepayment penalty to pay on the amount by which you reduce the mortgage,” he says. This is a factor you’ll want to consider when determining if a port makes financial sense. 

Blend-and-extend mortgage

If you’ve already discussed your borrowing options with a mortgage broker or lender, you may have heard them mention a blend-and-extend mortgage. 

“A blend-and-extend mortgage enables you to combine your existing mortgage rate with current market rates while prolonging the duration of your mortgage,” Johnson says. “This may be advantageous when current rates are lower than your existing rate, enabling you to decrease payments without breaking your mortgage agreement and facing penalties.” 

By extending the repayment period, a blend-and-extend mortgage could potentially result in a reduction in your monthly payments.

However, given the current high-interest-rate environment, borrowers are unlikely to benefit from a blend-and-extend scenario unless they’re moving to a more expensive home.  

Mortgage rates when you port a mortgage

While there are other factors to consider, porting a mortgage makes the most sense when your existing mortgage rate is lower than current rates—which is the case for most Canadians holding a fixed-rate mortgage right now. Within the next two years, millions of Canadians are expected to face a steep rise in mortgage payments at renewal as a result of today’s high rates, according to the Bank of Canada.

In the current environment, Johnson believes that porting makes sense for a lot of people. “In today’s climate of higher interest rates, I find that porting has become more popular as borrowers want to keep the lower fixed rates from their existing mortgages they signed three to four years ago,” he says. 

For a better understanding of how your existing mortgage rate compares to current rates, here is our mortgage rate table with the latest data: 

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Should you port your mortgage? 

If you’re selling your home in the middle of your mortgage term, you have options. As long as you’re purchasing a new home around the same time, you may be able to port your mortgage and avoid paying a penalty while keeping your existing interest rate a little longer. If you do, follow Johnson’s advice to “consider any related charges and ensure that the new property aligns with the lender’s porting requirements.”

Read more about mortgage rates:

• What to do when your mortgage renewal is declined
• How much income do I need to qualify for a mortgage in Canada?
• Should you get a 30-year mortgage?
• 3-year versus 5-year mortgage: How to choose your term

About Colin Graves

Colin Graves is a former Big Five bank manager turned financial writer and editor. He writes about escaping the 9-to-5 in his weekly newsletter.

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