What is Porting Your Mortgage?
Moving from one home to another is a thrilling experience for any homeowner. Unfortunately, breaking your mortgage contract before it is paid off can be extremely costly. If you want to avoid these penalties, transferring your mortgage can be the best solution.
Taking your present mortgage rate and contract and transferring it to a new property is referred to as porting your mortgage. It’s especially useful if interest rates have risen since you signed your current loan agreement. Maintaining your previous rate despite market rate increases can result in significant savings on your new home.
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It’s important to remember that porting only affects your mortgage terms and interest payments; the down payment on your new home should be paid as usual. You will not harm your credit score by transferring, and you will save many of the additional costs associated with breaking or defaulting on your mortgage.
The cost of transferring a mortgage is typically lower than the cost of terminating a mortgage contract early, with early termination penalties typically ranging from three full months of interest to an interest rate differential that can be insanely high on many mortgage-style loan installments.
Eligibility Criteria for a Porting your Mortgage
If you’re considering moving your mortgage, the first step is to talk to your lender and determine your eligibility. Make sure to examine the conditions of your present mortgage contract; if the option of porting is not covered, it will be extremely difficult to renegotiate the terms at this time.
The interest rate you are presently paying may also affect your eligibility; porting is normally only possible if you are currently paying a fixed rate. You may need to renegotiate your variable rate with your lender before you can qualify for portability if you’re paying a variable rate. Lenders may also choose to subject you to another background check before approving your request for porting.
Your income, employment status, debt situation, credit score, and other financial factors may be examined to assess whether you are creditworthy enough to be considered for the porting process.
Before addressing your lender, it is a good idea to check into your existing financial situation. Make sure you don’t have any large debts and that your tax and income files are up to date.
Of course, even if you follow these requirements, your current lender or bank may deny your request. Here are some more reasons why you might not be able to port your mortgage:
- You are unable to demonstrate your current income (this may occur if, for instance, you have been self-employed for the past year and a half but failed to present the appropriate tax return paperwork)
- Your salary has decreased since you applied for your existing mortgage.
- Your monthly debt-to-income ratios have risen since your last mortgage application and are now unacceptable.
- Your credit score has dropped below the permissible level set by your lender.
- The qualification requirements have changed, and you no longer qualify based on the new guidelines despite no changes in your income, credit, or income-to-debt ratios.
- Your new home does not meet the eligibility requirements set out by your lender (e.g. the property is outside the lending area, etc.)
- You have a Home Equity Line of Credit (HELOC) that your lender does not allow you to transfer.
Challenges to Look Out for When Porting Your Mortgage
You are Allotted a Short Closing Time
One of the difficulties most homeowners face when trying to port their mortgages is the short window they are given. The majority of lenders will only give you 30 to 120 days to complete the porting process. It’s possible that you won’t have enough time to sell your old home and move into your new one.
If you’re moving to a new area but don’t yet have a job lined up, this could affect your creditworthiness in the eyes of your lender, preventing you from getting approved. In this circumstance, the ideal technique is to make sure you have all of your affairs in order before starting the moving process; this will substantially boost your chances of success.
The New Property Requires a Bigger Mortgage than Before
Additional obstacles may develop if your new home or property is more expensive than your current residence. If mortgage rates have risen, you will need to negotiate a new arrangement for the additional funds the lender will grant you, maybe at a much higher interest rate. Fortunately, many lenders will let you combine and extend your mortgage payments, blending your new interest rate with your old one to achieve a middle ground.
Unfortunately, regardless of how much of your original mortgage you have managed to pay down, this approach usually includes extending the mortgage term. The mortgage term may even be reset to its original length, which many borrowers find exceedingly bothersome.
Your New Property Costs Lesser than the Previous One
If your new property is less expensive than your current one, you may face difficulties. Most lenders will still let you port without a penalty, but you will have to make a hefty pre-payment to help pay off your old mortgage.
Some lenders may have restrictions on how cheaper your new home can be compared to your present one. In general, if your new house is up to 25% less expensive than your current home, you should have no problems, but it’s always a good idea to check with your lender before committing to the purchase.
Cannot Afford the Down Payment
The final issue to examine is whether you can afford to put down a deposit on your new home. If you close on your new home before selling your old one, you’ll have to pay the down payment without having the proceeds from the sale on hand.
Bridge loans are available from some lenders to help bridge the gap, although not all lenders offer it. If you can’t afford your down payment right now and your lender doesn’t offer bridge financing, you may be compelled to refinance or take out a second or private mortgage. In some circumstances, this will exclude you from the porting procedure.
How to Streamline the Porting Mortgage Process
Being prepared and knowledgeable is the best approach to assure a successful porting procedure. Make sure you’ve explored all of the issues that could affect your eligibility before opting to move your mortgage.
Make yourself aware of all the options available to you.
Mortgage porting is a significant financial decision that should be approached with caution and care. Irrespective of how you proceed, there will be benefits and drawbacks, as with any important decision. If you think about these potential benefits and consequences before starting the porting process, you’ll be able to alleviate a lot of the stress.
Involving your lender in the decision-making process is also a good idea. Ask them if porting is an option, and work with them to see if you match their eligibility requirements. While you may be porting your mortgage for the first time, your lender is likely to have done so before and will be a great resource as you go through the process.
Of course, the best way to ensure a smooth transition is to prepare yourself for success before you even start looking for new property to buy. Consulting with a mortgage consultant can make or break your finances.
Working with a mortgage broker may assist you in navigating mortgage rates and ensuring that you are getting the best terms and contract possible, perhaps saving you thousands of dollars in the long run.
If you’re interested in porting your mortgage and would like a free consultation, contact Freedom Capital now to speak with a qualified and experienced mortgage broker.