To Port or Not to Port Your Mortgage
So you find yourself looking to move for whatever reason. Maybe you and the neighbours have become the Hatfield’s and McCoy’s or maybe your dream home has come available. Whatever the situation, when you find yourself considering a move, I hope you will remember this article and the sage advice it offers and save yourself some money. It is your money after all so you really should keep as much of it as you possibly can.
The first thing to consider is the mortgage penalty. Before you list your home you would be very smart to call your current mortgage provider and find out exactly what your penalty will be. There is no set rule as to how lenders have to calculate this amount and it does vary greatly from bank to bank.
The second thing to consider is the mortgage insurance premium. If you purchased your home with less than 20% down you will have paid the mortgage default insurance premium. If you do not have 20% down for the new home you will be looking at incurring this cost again. If you port, you will only pay on the new funds you are borrowing.
Let’s look at this in real dollars so you get an idea what we are talking about. Here is the story of Joe and Joanna.
They bought the current home for $300,000 with 5% down. The mortgage was a 5 year fixed rate at 3.09% over 25 years. They paid an insurance premium of 3.60% or $10,260 which was added to the mortgage making the total loan $295,260. After 3 years and 5 months they owe about $269,225. They did some work to the house so they can sell for $350,000. That gives them $80,775 less Realtor fees and legal fees. The new home is $400,000 and they go online and figure out the payments at the low rates of today. The payments are affordable and they are ready to go. But wait! There is a lot more to consider.
Depending on where they got their mortgage in the first place, that penalty to break the contract to take the new low rate can vary between $2,423 and $6,461 based on the lender. (Hopefully you did your research the first time around to make sure you are with the first one)
There is also the consideration of the insurance premium. If our heroes take a new mortgage putting down 10% they will incur a mortgage premium of $11,160.00. If they ported the mortgage over they would only have to pay the premium on the new funds they are borrowing which would make the premium only $5,718.82.
When you add the lesser of the penalties and the difference on the premium insurance amount you can see that they would have saved $8141, or a whopping $12,180 on the second, by porting.
If you do decide to port check with you mortgage lender to find out how your new rate will be determined, what amortization you have to keep, their porting timeline maximums and any other policies which could affect you. Each lender is so different that the onus really is on you to cover all your bases. Hopefully you can see that you should at least consider a port to save yourself money.