How to Port a Mortgage in Canada: Rules, Costs, and Pitfalls

You locked in a rate a couple of years ago. Now you are selling your home and buying another one. The question that comes up every time: can you take that mortgage with you? That is what mortgage porting is. It can avoid a prepayment penalty, but it does not always come out ahead. Here is how it works in Canada, what can go wrong, and how to compare porting with breaking your mortgage for your own situation.

What Does It Mean to Port a Mortgage?

The Financial Consumer Agency of Canada (FCAC) describes a portable mortgage this way: if you sell your home to buy another one, it lets you transfer your existing mortgage, including the balance, interest rate and terms and conditions.^[1] You are not paying off the old mortgage and starting fresh. You are moving the same contract to a different property.

FCAC lists two reasons you might consider porting: your existing mortgage has features you like, and you want to avoid the prepayment penalty for breaking your contract early.^[1] Whether that is worth doing depends on how your rate compares with today's rates and how large the penalty would be, which is what the comparison below walks through.

Porting is not the same as assuming a mortgage, where a buyer takes over your loan. With porting, the mortgage follows you, the borrower, to the new property.^[1]

How Mortgage Porting Works, Step by Step

The process generally looks like this in practice. Details differ by lender, so treat this as a checklist of questions rather than a fixed procedure.

1. Check your mortgage contract. Look for a portability clause. FCAC says to check with your lender whether your mortgage is eligible for porting and to ask about any restrictions.^[1]
2. Tell your lender early. Ask what notice, paperwork and timing the lender needs, ideally before you list your home.
3. Expect to be approved on the new property. Porting is not automatic. Lenders generally review your income, credit and the new property again, and may require you to qualify for any additional borrowing. Our guide to mortgage qualification explains how qualification works.
4. Coordinate closing dates. Your lender will set how much time you have between selling your current property and buying the new one. Confirm the exact window in writing.
5. Close on both transactions. Your lawyer handles the discharge of the old mortgage and the registration of the new one. If the dates do not line up, you may need bridge financing to cover the gap.

The Portability Clause: What to Look For

Portability is a feature of your mortgage contract, and the terms vary by lender and product. When you review your mortgage agreement, check these points:

• Time window. How many days do you have between closing on the sale and closing on the purchase?
• Location. Can the mortgage be moved to a property in another province, or only within the same one?
• Borrowing more. Can you borrow more on the new property, and how is the added amount priced?
• Qualification. Do you need to re-qualify for the full amount, or only for the increase?
• Property type. Are there restrictions on the type of property the mortgage can move to, such as a rental property or a cottage?
• Mortgage type. Is your product portable at all? Some are not, and fixed-rate and variable-rate products may be treated differently.

If your mortgage does not have a portability feature, porting is not available. It is worth checking before you start house hunting. A call to your lender or a read of your mortgage contract will tell you where you stand.

Borrowing More, and Blend and Extend

Many people who move are not buying a home of the same value. FCAC says that if you need to borrow more money for your new home, you should ask your lender for details.^[1] How the extra money is priced, and whether it is combined with your existing rate into one blended rate, depends on the lender.

A related option is the early renewal known as blend-and-extend. FCAC explains that a lender may let you extend the length of your mortgage before the end of your term without a prepayment penalty, though you may have to pay administrative fees. The lender blends your old interest rate with the rate for the new term, and it must tell you how it calculates your new rate.^[2] FCAC publishes a simplified method for illustration: multiply your current rate by the months remaining, add today's rate multiplied by the months added to reach the new term, then divide by the months in the new term.^[2] Your lender's own calculation may differ, so ask for it in writing.

A mortgage broker can help you compare how different lenders handle borrowing more on a move.

Porting vs. Breaking: An Illustrative Comparison

Prepayment penalties are where porting and breaking differ most, so the first step is to understand how the penalty is worked out. FCAC says the penalty will usually be the higher of two amounts: three months' interest on what you still owe, or the interest rate differential (IRD).^[3] FCAC adds that a lender will usually use the IRD when your mortgage rate is higher than the current rate and you signed your current contract less than five years ago.^[3] The IRD compares the interest you would pay on the rest of your term at your rate with the interest at a current rate, and lenders differ in which rates they use, including posted rates and discounts.^[3] Read your contract, since your lender must explain how it calculates the penalty.^[3]

Now an example. The figures below are made up to show the arithmetic. They are not current market rates or a quote. Suppose you owe $400,000 at 3.50% fixed, with 3 years left in your term and 23 years left in your amortization. A new 3-year fixed mortgage, to match the time you have left, would be 4.75% in this example. Payments assume the usual Canadian method of semi-annual compounding.

Option A: Port the mortgage

Option B: Break and take a new mortgage

In this example, breaking costs about $3,500 in penalty, plus fees, and raises the payment by roughly $267 a month, which is about $9,600 over the 36 months of the term. Total interest over those three years is about $14,500 higher at the higher rate. Porting looks clearly better here because the rate is lower than the market and the penalty is the smaller three-month amount. Change the inputs and the answer changes. Figures are illustrative only. OAC. Rates subject to change. Conditions apply.

The picture is different if rates have fallen since you signed. FCAC gives an example with a $200,000 balance at 6%, 36 months left in the term, and a current posted rate of 4%: three months' interest is about $3,000, the IRD is about $12,000, and the penalty is the higher figure, $12,000.^[3] If you are in that position, the penalty on breaking can be large, and porting, or waiting until your term ends, may be worth comparing against it. Whether it is worth it depends on your numbers, so ask your lender for the actual penalty figure in writing.

Timeline and Deadlines

Timing is a common reason ports run into trouble. Your lender sets how long you have between selling your current property and closing on the new one, and the number of days varies by lender. If you miss the window, the port may be cancelled and a prepayment penalty may apply, which is the cost you were trying to avoid.

A typical sequence looks like this:

• Sale closes: the mortgage on your current property is discharged.
• Portability window: you must close on the new purchase within the period your lender allows.
• If there is a gap: you may need bridge financing to cover the interim period. Ask how your lender treats the gap, since practices differ.

The safest approach is to line up closing dates as closely as you can. If you cannot, confirm with your lender exactly how the gap is handled and whether bridge financing is part of the arrangement or needs to be arranged separately.

Common Pitfalls That Can Derail a Port

Porting can sound simple on paper. These are issues that can get in the way:

1. Re-qualifying. Your income, debts or credit may have changed since you first got the mortgage, and the lender may review them again. Changes such as a new loan, a new job, or a change in how your income is earned, as often happens with self-employed borrowers, can affect the result.
2. A low valuation on the new property. If the lender values the home below the purchase price, you may need more cash, or the port may be declined.
3. Missing the deadline. A construction delay on a new build, a chain of closings, or a buyer who backs out of purchasing your home can push you past the portability window.
4. A new home that costs less than your mortgage. FCAC notes that you may pay a prepayment penalty if your new home costs less than the amount of your mortgage.^[1]
5. Property type or location restrictions. Your portability terms may limit the kind of property or the province the mortgage can move to.
6. Amortization. Ask how your lender treats the remaining amortization on the new mortgage, since it affects your payment.

When Porting May Help, and When It May Not

Porting is most worth a close look when your rate is below current rates and you have a good amount of time left on your term, since you keep your rate and may avoid a penalty. How much it helps depends on your balance, the rate gap, the time remaining and what the lender charges, so the answer is in the numbers, not in a rule of thumb.

Porting may be less attractive when:

• Your rate is at or above current rates. Breaking and renewing at a lower rate can reduce your interest over the term, as long as the penalty and fees do not cancel out the savings. FCAC advises making sure the benefits of breaking will save you money once all fees are included.^[2]
• You need to borrow much more. The rate on the added amount and the way it is blended depend on the lender, so compare that with what a fresh mortgage for the full amount would cost.
• You want to change lenders. Porting generally means staying with your current lender, so you give up the chance to shop around. FCAC lists shopping around among the ways to reduce prepayment penalties.^[3]
• You want to change your rate type. Ask your lender whether porting allows a different product.

The bottom line: get the penalty figure and the port terms from your lender in writing, then compare both options side by side before deciding. Your lender must explain how it calculates the penalty, so the number is a known quantity once you ask.