Let’s Talk… Portable Mortgages

This is a mortgage that allows the mortgage borrower to transfer their mortgage balance to a new property and with the same lender without penalties.

The borrower will transfer the mortgage to the new property with the exact terms that remained at the time of the transfer. Most mortgages in Canada have some type of portability feature.

Example

Mr. McGillicuddy has a home with a $250,000 mortgage, at 4% interest a 5 year term and a 30 year amortization period. At the end of year 2, Mr. McGillicuddy must move to a new city due to a job change. Since the time of taking the original mortgage, prevailing interest rates have risen to 6%. Rather than taking a new mortgage, incurring prepayment penalties and higher interest rates, Mr. McGillicuddy’s mortgage has a portability feature.

Mr. McGillicuddy ports his mortgage, on its original terms, to the new property. The interest rate will remain at 4%, there will be no prepayment penalties and the mortgage term will have 3 years remaining. Mr. McGillicuddy will pay a few hundred dollars in bank fees for the privilege to transfer the mortgage.

Portability of Private Mortgage Insurance

If a mortgage equals more than 80% of the real estate’s market value, the mortgage lender requires mortgage insurance. Luckily, the Canadian Mortgage and Housing Corporation allows portability of mortgage insurance. There is no new premium paid, provided the mortgage term remains the same, and the loan-to value ratio is equal or lower than that of the previous property

Advantages of a Portable Mortgage

A portable mortgage feature has several advantages for the right homeowners. If a homeowner has locked in to a low rate when mortgage rates are low, but then has either the need or the desire to purchase another home, the low interest rate is retained.

Prepayment penalties can be severe, up to 3 monthly payments or the cost of increased interest in the remaining term of the mortgage. These amounts can equal several thousands of dollars.

In addition, many of the costs associated with obtaining a new mortgage might not be charged. However, you might expect an appraisal fee for the new property, as the mortgage lender must be assured that the loan-to-value ratio meets their requirements.

At First Foundation, all of our mortgage products have portability features and we can explain their benefits when assessing your mortgage needs.