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When Porting a Mortgage Goes Wrong

Porting your mortgage explainedYour mortgage is portable, right?

Almost all mainstream lenders claim their mortgages are portable. But portability clauses have more caveats than a prenuptial agreementso many that people hoping to port are routinely disappointed.

Back in 2011, about 3 out of 8 home sellers used to port their mortgage. But the percentage who port has been steadily sinking since then. We’d hazard to guess it’s near an all-time low, but there’s no recent data on it.

Porting is so convoluted these days that it has become one of the more over-rated mortgage features. Below we explain…

What is Porting a Mortgage?

Porting is when you move your mortgage from one property to another. People do it when they buy a new home, want to preserve their current interest rate and avoid a penalty for breaking the mortgage early.

What many don’t realize is that porting is like starting from scratch on your mortgage. It requires total re-qualification of everyone on the mortgage, meaning a whole new application, all new employment documentation, a fresh credit check and a new appraisal.

Porting Challenges

Mortgage porting pitfallsNew government regulations, among other things, have made porting trickier. Here are just some of the reasons a mortgage cannot be ported:

  • You can’t prove income
    • If your documented income isn’t adequate (e.g., has fallen since you last got approved), you could have a problem
    • One common example is when people go self-employed but don’t have the required two years of tax returns showing sufficient earnings
  • Your debt ratios are too high
    • If your monthly debt and housing obligations have grown too large, as a percentage of your gross monthly income, you’ll be declined
  • The new property doesn’t close in time
    • If your new home closes after the lender’s porting deadline, you can’t port
      • Lenders typically allow 30-90 days to port (some only allow same-day ports; a few allow up to 365 days)
      • Don’t underestimate how hard it is to get the closing dates of your old and new home to fall within 30 days of each other
  • The property doesn’t qualify
    • If the lender doesn’t want to lend on your new property, you’re out of luck
      • Sometimes lenders decline properties that have marketability issues like condo problems, former grow-ops, building flaws, co-ops, live-work units, leasehold land, etc.
  • You’ve got a variable-rate mortgage
    • If your lender doesn’t port its variable-rate mortgages (many don’t), you may have to break it and pay a penalty
      • Some lenders will allow (require) you to convert your variable to a fixed rate before porting, but you may not want to lock into their cruddy fixed rate
      • If your mortgage has a home equity line of credit component, note that some lenders refuse to port HELOCs
  • Your credit score has fallen
    • If you no longer meet the lender’s minimum credit score (e.g., 650 or 680+), porting may not be an option (or you could end up paying a higher rate)
  • You can’t get bridge financing
    • If your new property closes before your old property, you need to “bridge” the down payment until you get the cash from your sale
      • The problem is, not all lenders offer bridge financing. If yours doesn’t, and you need it, and you can’t get it elsewhere, you may have to break the mortgage
  • The property is outside the lending area
    • Some non-bank lenders have very restrictive lending areas
      • If you’re with a credit union, for example, you generally can’t port out of the province
      • Many other smaller lenders have restrictions on rural properties, especially if the mortgage is not default insured
  • You need more money
    • This is a common requirement when upgrading to a new home
    • Unfortunately, some non-bank lenders will only port the exact same dollar amount
      • That means you may have to come up with the difference if you buy a more expensive home, or break the mortgage
    • A note on lenders that allow it: Applying for more money while porting (a.k.a., a “port and increase”) reduces your negotiating power because the existing lender knows you don’t want to pay a penalty to leave. For that reason, don’t expect to get the lender’s very best rate on the new loan amount
  • You want to keep your maturity date
    • Some lenders require you to get a brand new 5-year term when you “port”
      • That can lock you in longer than you’d prefer at a worse rate than you like

Porting often doesn’t work out. A lot more people than you think end up paying a penalty to break their mortgage. That’s why it’s important to ask about your lender’s porting restrictions if there’s a chance you’ll move before your term is up.

Of course, if current rates are low enough to warrant breaking your existing mortgage and paying a penalty, that’s the way to go.

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  • david says:

    All of these situations could also be relevant on a renewal switch [eg lower credit score, reduced or not verifiable income etc]. Yet, spy and others are very critical of the application of stress tests for a renewal switch. Why is the stress test so inappropriate on renewal switch compared to all of these other situations which for whatever reason are appropriate in underwriting renewal switch. What makes the stress test so special and so wrong compared to these other circumstances. Just curious, thanks.

  • Tbahz says:

    The Big 5 Banks would and in my experience be the easiest to deal with in porting, having done it twice. Port and increase no problem and even keeping the same rate with remaining term or been offered the blended rate for a new 5yr.

  • The Spy says:

    Hi David,

    A straight switch is different than a port because the property (lender security) stays the same, it’s not contingent on sale of an existing property, there’s no need for more money, there’s less increase in overall risk, etc.

  • Matt says:

    I would agree that banks are easiest to port with but you pay for that flexibility with higher upfront rates and penalties.

  • Ralph says:

    This is a good article Rob. Finding our porting rules is often difficult. Most mortgage contracts only have a couple sentences about porting, and I have yet to find a major lender that discloses their porting rules online. I’d like to see another article on assuming a seller’s mortgage, as that is another common mortgage clause that is not clearly defined.

  • david says:

    Hey spy, one follow-up question: when a borrower switches at renewal, there is a full underwriting including credit score, income verification etc. Why do you advocate not to apply stress tests on a switch when all the other tests are applicable. Back to my original question: why is the stress test irrelevant and all the other underwriting metrics relevant for a renewal switch. Thanks.

  • GTA Broker says:

    B-20 has made it impossible for many to upgrade and port. I often see clients where the only way they can port is to downsize.

  • Damien says:

    I am investigating an egregious break fee charged by a bank for breaking a mortgage where they did not allow porting when the home owners sold and purchased a new property in the same neighbourhood. This type of behaviour by the banks is sickening and impacts the most at risk borrowers that do not have the expertise to avoid it. If a lender no longer is comfortable lending to a borrower, the borrower should not be penalized more than administrative costs of cancelling the mortgage. The lender clearly has the option of porting the mortgage with no additional risk. I am looking for all options available to contest this mistreatment and would appreciate any thoughts.

  • JP says:

    When the security changes the lender has an obligation to requalify the customer. If the customer cannot requalify under the lender’s standard underwriting guidelines, there is no choice but to break the mortgage. Ports have always been subject to requalification and it says that in every new mortgage contract.

  • Rana says:

    Hello RateSpy, can you advise what happens if you are in a 5 year fixed rate and you want to port to a new property less than the value of the existing property? Is it a straight port considering your loan amount is less or you end up paying a penalty? Any advise would be helpful. Thank You.

    • The Spy says:

      Hi Rana, You’ll want to confirm your specific lender’s policy but some lenders allow you to port a closed mortgage with no penalty, so long as the mortgage is reduced by no more than your available prepayment privilege. At other lenders you’ll need to make a prepayment before the mortgage is ported (to reduce the balance in advance so that it’s a “straight port”). Any reduction in the mortgage amount beyond this would generally incur a prepayment penalty.

  • Matt says:

    I would appreciate your expertise on this situation:
    I am looking to sell my home and purchase a lower value property in a different city. I have quit my job in anticipation of the move and do not yet have employment in the new city.
    If I can show that I have 2 years worth of mortgage payments in a locked account do I need to demonstrate a job before I can move the mortgage to the lower value property In the new city?
    What options are available to me so that I do not incur the $20k penalty for breaking the mortgage?

    • The Spy says:

      Hi Matt,
      Mainstream lenders require that borrowers re-qualify to port their mortgage to a new property.
      That typically entails income validation, meaning the underwriter will want to see proof of current income and employment.
      If you ultimately obtain a job offer in the new city, that may suffice depending on the circumstances and lender.
      Do you plan to seek re-employment soon? If so, find out how long your lender gives you to port with no penalty.
      If you secure the new job before the deadline, it might work out.
      If you haven’t already, you should probably chat with a broker, and the lender itself, to see if further options exist based on your fact case.

  • Janelle says:

    Hi if I port my mortgage and don’t actually purchase another place for 3 months ( under the 120 days time limit) am I still paying my mortgage month to month, or not until I purchase a place?

    • The Spy says:

      Hi Janelle, Some lenders are different but in most cases a lender will assess a prepayment charge when you sell the old home *or* keep taking your regular payments or interest payments until the mortgage is secured to the new property. If you’re assessed a penalty, it would be partially or fully refunded back to you if you close on the new property before the lender’s porting deadline. Fees will apply to a port as well. Best to call your current lender and check its policy.

  • Rea-ann Sandquist says:

    Why did I have to pay off my mortgage if I’m moving it over ? I just sold and paid in full form the sale of my house the mortgage ,next week will sign for the new house…. But it’s ported mortgage….. I’m so confused ?

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