What Is Mortgage Porting and How Does It Work?

Mortgage porting allows homeowners to transfer their existing home loan to a new property, potentially retaining its terms and conditions. This process offers an alternative to securing an entirely new mortgage when moving, aiming to avoid the complexities and costs of a new loan.

Understanding Mortgage Porting

Mortgage porting moves an existing mortgage, including its terms and conditions, from a sold property to a new one. This allows borrowers to keep their original interest rate, remaining term, and other clauses. Unlike a new mortgage application with current market rates, porting maintains the established financial arrangement. This is appealing if a homeowner has a favorable interest rate lower than current market offerings.

Homeowners primarily explore porting to avoid early repayment charges (ERCs) that apply if they pay off their current mortgage early. These charges can be substantial, often calculated as a percentage of the outstanding balance. Porting aims to bypass these fees, resulting in significant cost savings. Maintaining a competitive interest rate also leads to considerable savings over the loan’s life, especially in a rising interest rate environment. While transferring the existing mortgage, lenders typically re-evaluate the borrower’s financial situation and the new property.

Key Factors for Eligibility

Eligibility for mortgage porting requires reviewing existing mortgage terms and the borrower’s current financial standing. Not all mortgages are portable; the option depends on the lender’s policies and product type. Many fixed-rate mortgages may be portable, while some variable-rate products might not. Homeowners should consult their original mortgage agreement or lender to confirm portability.

Lenders conduct a new financial assessment, similar to a new mortgage application, to ensure the borrower meets lending criteria. This reassessment includes evaluating credit scores, income stability, and employment status. Changes in financial circumstances, like decreased income or a lower credit score, could impact eligibility. Lenders typically require a good repayment history.

The new property also undergoes scrutiny to align with the lender’s collateral criteria. This involves a valuation and appraisal to confirm its value and suitability. Some lenders restrict property types or locations for porting. For example, single-family homes might be more readily accepted than unconventional properties. The new property’s value must also be considered in relation to the outstanding mortgage balance.

The Porting Process

The mortgage porting process begins with the homeowner contacting their current lender. This confirms the mortgage’s portability and clarifies specific requirements and conditions. The lender provides information on necessary documentation and fees.

After initial contact, the homeowner submits a formal application for porting to the new property. This application mirrors the original, requiring updated financial documents like proof of income, employment verification, and credit reports. The lender then assesses the new property, including an appraisal or valuation to ensure it meets lending standards.

Once financial and property assessments are complete, the lender decides on the porting application. If approved, they issue a new mortgage offer outlining terms for the ported loan. Lenders commonly require the sale of the old home and purchase of the new home to occur within 30 to 120 days for a seamless transfer. Legal professionals handle closing documentation for both transactions. The process, from application to transfer, can take one to three months, depending on complexity and lender efficiency.

Implications of Mortgage Porting

Mortgage porting has several financial and practical implications. A significant aspect is how the interest rate applies if the new property requires a higher loan amount. If the new home is more expensive, homeowners often need to borrow additional funds, known as a “top-up” or “additional borrowing.” This additional amount may be subject to the lender’s current interest rates, which could be higher than the existing ported rate.

In such cases, the mortgage may become a combination of the original ported balance at the old rate and the new borrowing at the current rate. This results in a “blended rate,” a weighted average of the two interest rates, falling between the original low rate and the current market rate. A blended rate adjusts the overall borrowing cost to reflect both preserved terms and new market conditions. Homeowners might end up with two separate loan parts, potentially with different end dates, complicating future refinancing.

Various fees are associated with mortgage porting, even though it avoids early repayment charges. These include valuation fees for the new property, ranging from a few hundred dollars to over a thousand, depending on value. Legal fees for property transactions and any product or arrangement fees from the lender may also apply. While not always a specific “porting fee,” application and valuation processes incur costs. These expenses should be factored into the financial assessment to determine if porting remains the most cost-effective solution compared to a new mortgage.