What Does it Mean to Port your Mortgage?

The sale of a previously owned home can lead to three very important mortgage features – mortgage penalty fees, mortgage assumability and mortgage portability. Mortgage penalty fee is the amount paid by the property’s owner as a penalty for his inability to prepay the mortgage within a certain time period. Mortgage assumability on the other hand, is a situation where the outstanding mortgage and its terms are transferred from the current owner of the property to the buyer. In such a sale transaction, the outstanding mortgage amount is adjusted in the selling price of the property.

When it comes to mortgage portability, it is a situation in which the owner of a property transfers the debt he/she owes on that property to another property, also owned by him/her. In other words, to port your mortgage is to transfer the outstanding mortgage on one property to another property. For example, if somebody already owns a home with a mortgage and is moving to a new home, porting the mortgage would mean that he can apply the current mortgage to his/her new home. People prefer porting a mortgage rather than selling it to the buyer with the house because the former allows them to keep their mortgage at the same interest rate instead of getting a new mortgage with a higher interest rate.

Since the owner can keep the interest rate from his/her old mortgage, mortgage portability is more common when there is an increase in interest rates. It is pertinent to mention here that when porting a mortgage, the owner of the property is required to pay the mortgage release fee. The mortgage release fee is determined by the mortgage lender when initially granting the mortgage and is mentioned in the mortgage contract.

Portable and non-portable nature of the mortgage is also determined when signing the mortgage contract. If your mortgage is not portable, you may be required to pay the penalty for ending your contract early, without prepaying the mortgage in full.

The ideal time for porting a mortgage is when your existing mortgage rate is lower than the rate available in the market. For example, if you signed a 5-year mortgage at a fixed rate of 3.65 percent two years ago, and the 5-year fixed rate available in the market is 3.99, it is in your interest to keep the 3.65 percent fixed rate. Keeping the lower fixed rate would reduce your monthly mortgage payments as well the total amount of interest you will pay.