Introduction

Buying a new property is an exciting endeavor, but it often comes with financial considerations, especially if you already have an existing mortgage. Two common options to explore in such situations are “porting your mortgage” and obtaining a “blend and extend mortgage.” These strategies can help you navigate the transition to a new property without incurring hefty penalties or high-interest rates. In this blog post, we’ll look at the details of these options and help you make an informed decision for your real estate journey.

Porting Your Mortgage

Porting your mortgage involves transferring your existing mortgage to your new property. This option is suitable for homeowners who want to maintain their current mortgage terms, such as interest rate and maturity date, while upgrading to a different property. Here’s how it works:

1. Eligibility: Not all mortgages are portable, so check with your lender to confirm if your mortgage is. Typically, fixed-rate mortgages are more likely to be portable than variable-rate mortgages.
2. Property Assessment: Before you proceed, your lender will assess the new property to ensure it meets their lending criteria. This includes an appraisal to determine its current market value.
3. Application Process: You’ll need to apply for a mortgage on the new property and provide the necessary documents, just like you did when you initially obtained your mortgage.
4. Top-Up Mortgage: If your new property costs more than your old one, you may need to apply for a top-up mortgage to cover the difference.

Benefits of Porting Your Mortgage:

a. Maintain Favorable Terms: Porting allows you to keep your existing mortgage terms, including the interest rate, which can be advantageous if rates have increased since you first obtained your mortgage.

b. Avoid Penalties: You can avoid prepayment penalties associated with breaking your current mortgage contract prematurely.

c. Simplified Process: Porting streamlines the mortgage process, as you’re essentially carrying over your existing mortgage.

Blend and Extend Mortgage

A blend and extend mortgage is an alternative option for homeowners looking to buy a new property while keeping their existing mortgage. Unlike porting, this approach involves blending your current mortgage rate with the current market rate to create a new interest rate, usually for a longer term. Here’s how it works:

1. Assessment: Your lender will evaluate your existing mortgage and the new property, similar to the porting process.
2. Interest Rate Blend: Your lender will calculate a weighted average interest rate, considering your current mortgage rate and the prevailing market rate.
3. Extended Term: The new blended rate is applied to an extended mortgage term, typically five years. This can result in lower monthly payments.

Benefits of a Blend and Extend Mortgage:

a. Flexible Terms: This option provides flexibility by extending your mortgage term, reducing your monthly payments.

b. Market-Rate Advantage: If current market rates are lower than your existing rate, blending allows you to benefit from lower interest costs.

c. No Penalties: You avoid prepayment penalties associated with breaking your current mortgage contract, just like with porting.

Conclusion

When buying a new property with an existing mortgage, you have options to consider. Porting your mortgage allows you to transfer your current mortgage to your new property, maintaining your existing terms and avoiding penalties. On the other hand, a blend and extend mortgage can help you take advantage of current market rates and potentially lower your monthly payments.

Before making a decision, consult with your lender or a mortgage professional to assess which option is most suitable for your financial situation and long-term goals. Understanding these mortgage strategies can help you make a well-informed choice as you embark on your journey to a new property.