How to Effectively Move Debt to a Newly Purchased Home

Having discussed the negative implications of cashing out a fixed mortgage before it comes due, I’d like to dedicate this article to explaining exactly how an experienced borrower can avoid penalties where they tend to come up most: when purchasing a new home. Because of the difficulty that many people have with planning their finances over periods as long as 5 years, they often find themselves stuck in fixed contracts as borrowers.

While the attractive rates of a fixed and closed mortgage provide excellent savings in the short term, unexpected life events tend to throw a wrench in the cogs of financial plans all the time. Promotions, children, and lifestyle choices can all be drivers of a last-minute move. However, there are a number of fairly effective solutions available to accommodating a shift in financial position impacting the mortgage, all of which will protect the borrower from redemption fees. The easiest of these solutions is called a ‘mortgage port’.

Porting a mortgage involves transferring the lien of a current mortgage to a new property. While this may sound like a fairly simple procedure, the logistics of such a transfer are actually fairly complex. In order for a lender to properly protect themselves from the risks associated with the time in-between the borrower’s move, there are a series of steps that borrowers and lenders must coordinate on to accommodate the transfer.

The first step to porting a mortgage involves a borrower providing their lending institution with an unconditional offer to purchase the old property, as well as all the documentation associated with purchasing the new home. In providing such documentation, the borrower is assuring the bank that they actually do have the intention to move, and that they will continue to maintain ownership of a similarly valued asset.

From this point, the lender will work with the borrower to assess the value of the new property, adjust the outstanding balance of the mortgage if desired, and upon completion of a down payment, transfer the lien to the new asset. While this process still realistically flows similarly to the process for obtaining a new mortgage from scratch, there are a number of key differences that can really make borrowers feel pressured by the agreement.

The biggest constraints associated with a mortgage port have to deal with the timing of the agreements being made. For example, upon selling the previous home, the borrower must fully purchase a new home within a given timeline, which can sometimes be as short as a month.

Imaging trying to purchase a new home within a month, it’s a fairly stressful proceeding if the borrower hasn’t prepared. Additionally, borrowers need to make sure that the bank is properly removing the lien on the older asset at the time, or they will be both without home and the funds from the sale until they are legally allowed to sell the asset itself.

Lastly, by porting a mortgage, a borrower needs to make sure that their personal banker has as much notice as possible to prepare for the arrangement, because of the amount of work that takes place behind the scenes to accommodate such an arrangement.

Realistically, depending on the institution involved, a banker may require anywhere from a full week to even a month to prepare for such an engagement. As with so many banking transactions, simply having a good relationship with the lending institution can make all of the difference in facilitating a port transaction.