When selling your home and buying a new one, you might face hefty penalties for breaking your mortgage early. That’s where mortgage portability comes in, a feature offered by many Canadian lenders that can save you thousands. But what exactly is it, and when should you use it? In this post, we’ll break down mortgage portability and help you decide if it’s the right move for you.

What Is Mortgage Portability?

Mortgage portability allows you to transfer your existing mortgage, its interest rate, terms, and balance, to a new property without breaking the contract. This can avoid costly penalties, which, for fixed-rate mortgages, are often calculated as the interest rate differential (IRD) or three months’ interest, potentially costing thousands. For example, breaking a $400,000 mortgage two years early could incur a penalty of $10,000 or more, depending on the lender and rate differences.

Portability is particularly valuable if you locked in a low interest rate and current rates are higher, as it lets you keep that favorable rate on your new home. However, not all mortgages are portable, and the process comes with specific requirements.

How Does Mortgage Portability Work?

  1. Check Your Mortgage Terms: Confirm with your lender whether your mortgage is portable. Most fixed-rate and variable-rate mortgages from major lenders are, but some “no-frills” or specialty mortgages may not be.
  2. Qualify for the New Property: You must re-qualify for the mortgage on the new home, meeting the lender’s criteria, including credit score, income, and the stress test (qualifying at the greater of your rate plus 2% or the Bank of Canada’s benchmark rate, currently around 5.25%).
  3. Timing Matters: The sale of your current home and the purchase of the new one must align closely, often within 60–90 days, depending on the lender. Some lenders allow “bridge financing” to cover gaps.
  4. Adjust the Mortgage Amount: If the new home’s price differs, you may need to increase (blend-and-extend) or decrease the mortgage. For larger loans, you might need a second mortgage or additional financing.

When Should You Use Mortgage Portability?

Portability isn’t always the best choice, but it shines in specific scenarios:

  • You Have a Low Interest Rate: If your current rate (e.g., 2.5%) is lower than today’s rates (e.g., 4.5%), porting preserves your savings.
  • Avoiding Penalties: If breaking your mortgage would trigger a high IRD penalty, porting can save you significant costs.
  • Similar Property Value: Portability works best when the new home’s price is close to your current home’s, minimizing adjustments.
  • Stable Financial Situation: You must re-qualify, so portability is ideal if your income, credit, and debt ratios remain strong.

When Should You Avoid It?

  • Mismatched Timing: If the sale and purchase dates don’t align, you may face complications or additional costs like bridge loans.
  • New Home Doesn’t Qualify: If the new property doesn’t meet your lender’s criteria (e.g., it’s a different property type), portability may be denied.
  • Better Rates Available: If current market rates are lower than your existing rate, breaking the mortgage (and paying a penalty) to secure a new one might save more in the long run.
  • Non-Portable Mortgage: Some lenders or mortgage products don’t allow portability, so always check first.

Tips for Using Mortgage Portability

  1. Confirm Early: Contact your lender as soon as you plan to move to verify portability and understand their process.
  2. Work with a Mortgage Broker: A broker can help navigate portability rules and compare lenders for the best terms.
  3. Budget for Extra Costs: Factor in legal fees, appraisals, or potential bridge financing (1–2% of the mortgage amount).
  4. Plan the Timeline: Coordinate your sale and purchase dates to meet your lender’s portability window.

Mortgage portability can be a game-changer for Canadian homeowners looking to move without breaking their mortgage. It’s especially valuable for avoiding penalties and keeping a low rate, but it requires careful planning and qualification. Before deciding, review your mortgage terms, consult your lender or a mortgage broker, and weigh the costs against potential savings.

Want to learn more? Contact us at 780.792.0009 or charlene@charleneelliot.ca