Navigating the Process of Mortgage Porting

Even though life is unpredictable, you can rest assured that there exists options that can make the process of buying a house easier. Porting your mortgage is one such option. While not always straightforward, mortgage porting can come in handy when your circumstances suddenly change, such as when you want to move, buy a new home, or adjust to a different income bracket. 

This article will cover the details of porting a mortgage, including the pros, cons, and factors you must consider before taking this route. 

What Is Porting a Mortgage?

Mortgage porting is the process of transferring an existing mortgage, along with its current rate and terms, from your current home to a new one. This financial strategy is often employed when homeowners decide to move before their mortgage term ends.

One of the most common reasons you might consider porting an existing mortgage deal is to maintain the same mortgage conditions when moving to a new property. For instance, if your existing mortgage has a low-interest rate, porting allows you to carry this favorable rate to your new property. 

Can I Transfer my Mortgage to Another House?

Yes, you can transfer a mortgage to another house. This is essentially porting a mortgage. However, not all mortgages are portable. For instance, you can port most fixed interest rate mortgages, while with variable rate mortgages, this isn’t possible. Also, porting a mortgage depends on your lender’s terms and conditions. So even if your house is technically under a portable mortgage, it isn’t guaranteed that your lender will approve it.

How to Port Mortgage

Before you transfer existing mortgage to a new house, it’s best to consult with a mortgage broker or attorney to understand your options and the implications. You’ll also need to follow a series of steps, each important in ensuring a smooth transition. These include:

• The first thing you must do before porting a mortgage is to review your current mortgage terms and conditions by checking if it’s portable. You can do this by contacting your mortgage lender or broker to determine.
• Your lender will likely require a professional appraisal of the new property to ensure it meets their lending criteria.
• If the new property meets the lender’s criteria, you can apply to port your mortgage. Your mortgage lender will conduct credit checks, income verification and reassess your financial situation. If your credit score has taken a hit since you secured your original mortgage, it might affect your ability to port your mortgage.

What Are the Pros and Cons of Porting a Mortgage?

Porting a mortgage comes with several advantages. These include:

• It can help you avoid early repayment charges that may apply if you were to end your current mortgage agreement prematurely.
• If you’ve secured a particularly low-interest rate and rates have since risen, porting your mortgage enables you to keep your current rate.
• Porting your mortgage can provide financial flexibility and reduce the costs of buying a new home, especially if you’re moving to a cheaper house.

While porting a mortgage is beneficial in certain circumstances, there are certain downsides involved. These include:

• Porting a mortgage can limit your options as you must stick with your current lender. You might miss out on better deals or rates available elsewhere.
• Porting a mortgage can be complex and require legal assistance, adding to the cost and time involved.
• Moving to a more expensive home may increase your repayment since most lenders charge a different rate on the extra amount on the current mortgage. 

What Are the Implications of Porting a Mortgage When Moving to a Higher Value Property?

Porting a mortgage to a higher value property will require you to borrow more. This means that the extra amount might be at a different rate and may affect your monthly mortgage repayments and the overall cost of the loan.

Assuming you own a home worth $200,000 and have a mortgage balance of $150,000 at an interest rate of 3 percent. You then decide to move to a new property valued at $300,000. 

In this scenario, you would port your existing mortgage ($150,000) to the new property. However, because the new property is more expensive, you’ll need to borrow an additional $150,000 to cover the cost difference. Say your lender offers the extra amount at an interest rate of 4 percent. Here’s what your new mortgage might look like:

• Ported mortgage: $150,000 at 3 percent interest
• Additional borrowing: $150,000 at 4 percent interest

Can You Port Mortgage to a Cheaper Property?

If you’re downsizing to a cheaper home, you may end up with surplus funds that you can use to pay off part of your mortgage. However, this can trigger early repayment charges, so checking your lender’s policy is important.

Following the same example above, you decide to move to a cheaper home worth $150,000. You would port your existing mortgage ($200,000) to the new property. Because the new property is cheaper, you’ll have a surplus of $50,000 after selling your original home and paying off your existing mortgage.

If your lender imposes a 3 percent early repayment charge and you decide to use the $50,000 surplus to pay off a portion of your ported mortgage, you could incur a penalty of $1,500 ($50,000 * 3 percent).

What Are Secondary Mortgage Notes?

Secondary mortgage notes are an alternative way of financing property, particularly for sellers. One such alternative is seller financing, where the buyer does not take out a traditional mortgage with a bank or mortgage company. Instead, you (the seller) act as the lender and hold a promissory note where the buyer agrees to repay the loan. You, therefore, hold the mortgage note as an asset. With this, instead of porting the current mortgage to your new property, you can just take out a new mortgage. 

Additionally, if you, as a seller, need cash sooner rather than later, you can sell the note to a mortgage buyer at a discount. 

Is Porting House to Another Person Legal?

Transferring a mortgage to another person is possible, but several factors and requirements are involved. Legally, you can only transfer a mortgage under special circumstances. For instance, if a mortgage is “assumable,” you can transfer it to another person. An assumable mortgage is a loan that allows a buyer to take over a seller’s home loan. However, not all mortgages are assumable. The most common assumable mortgages are often government-backed, such as USDA, FHA, and VA mortgages. 

An assumable mortgage could be a good idea if the home buyer wants to take advantage of lower interest rates and lower closing costs. But, even if the mortgage is assumable, the mortgage lender usually has to approve the new borrower, which may involve credit score checks and income verification to ensure they can afford the mortgage payments.

Other circumstances that may allow you to transfer your mortgage include divorce, separation, inheritance, and financial hardship, where you can no longer afford your mortgage payments.

Transfer mortgages can have implications for both the original and new borrower. For the original borrower, transferring a mortgage could help avoid penalties for breaking your mortgage contract early. For the new borrower, assuming an existing mortgage might mean getting a lower interest rate than what’s currently available in the market, especially if the original borrower secured the loan when interest rates were low.

Final Thoughts

While porting a mortgage is an option that can provide financial benefits and flexibility when moving properties, you should make the decision to port a mortgage after carefully considering its potential drawbacks. It’s also best to consult with a mortgage advisor or financial professional to ensure you make an informed decision that aligns with your financial goals and needs.

FAQs

Can you port a mortgage in the USA?

Generally, mortgage porting in the US isn’t allowed. Unlike in some other countries, U.S. mortgages are typically not transferable from one property to another. When you move, you usually need to close out your current mortgage and apply for a new one for the new property.

Which lenders allow mortgage porting?

Wells Fargo, Bank of America, Capital One, and Quicken Loans are some of the lenders that may allow mortgage porting. 

What is the home loan portability procedure?

Home loan portability allows transferring an existing mortgage to a new property, maintaining the same loan terms. The process involves checking if your mortgage is portable, applying for portability with your lender upon finding a new property, and then transferring the mortgage to the new property upon approval, usually timed with the sale of your old property.