Portable mortgage

This is a really nice feature to have with your mortgage. It allows you to save on penalties if you sell your home and buy another one, and still maintain a mortgage with the same lender. What happens is the lender allows you to port or transfer the debt from the old house you are selling to the new one you are buying. So long as the debt on the new home is not less than the debt on the old one, there should be no penalty. If the debt is less, the lender may only charge you a penalty on the amount of the reduction. Or let's say you need to borrow more for the new home and the lender approves you, but the interest rates on the increase are higher than the rate on your old loan. The lender will blend the two debts and allow you to make a single, combined payment.

For portable mortgage to be effective, you must be a committed home owner for the entire term of the mortgage, although you don't have to be committed to owning one particular house during that time.

Although the security for the loan is being changed, most lenders will only allow a mortgage to be ported if a formal loan application is filed, and the normal lending criteria -income and property value requirements -are met.

What is the downside to portability? Few lenders who claim in their advertising brochures that their mortgages are portable actually say so in their mortgage documents. Without a written clause that allows you to port the mortgage if certain specified criteria are met, portability is nothing more than the lender's "policy." And that can change overnight with a directive from head office. If the mortgage is silent on portability, get a letter from the lender as a bare minimum, confirming that the mortgage is indeed portable, and under what conditions.

It is important to realize that the port is an internal lender feature-it does not alter what the lawyer has to do to complete the transaction. This means that when you sell your home, the lawyer must ensure that the entire amount of the mortgage you have gets paid out so that the new buyer starts with a clean title. The new amount is then placed as a brand new mortgage on the property you have purchased. The port feature is internal, then, in the sense that it allows you to avoid penalties you might otherwise have to pay in order to break the mortgage and settle it in the middle of a term.

Still, by taking the risks and the penalties out of the long-term mortgage, portability offers solid protection for home owners who decide to sell one house and buy another before maturity. In fact, portability could be the factor why one lender is picked over another.

Back To Top