Porting Your Mortgage When Downsizing in Hamilton

Can you take your existing mortgage to a smaller home?

Sometimes. A portable mortgage allows you to transfer eligible mortgage terms, including the interest rate and remaining balance, to a different property you're buying. The Financial Consumer Agency of Canada (FCAC) explains the feature and advises borrowers to ask their lender about eligibility and restrictions.

Not every mortgage is portable. The lender also needs to approve the replacement property and the financing arrangement. Porting is not something you can assume just because you're buying another home.

What if the next home costs less and you want a smaller mortgage?

This is where downsizing can complicate portability. You might sell a detached house and choose a bungalow, townhouse or condo that needs much less financing. If you want to borrow less than you currently owe, the lender needs to explain what happens to the portion of the mortgage you won't be keeping.

Depending on the contract, reducing that balance could trigger a prepayment penalty. If you need additional borrowing instead, the lender must explain the approval requirements and how that new amount would be priced. The existing rate does not automatically apply to every dollar you borrow.

Ask for the proposed balance and total cost in writing. An eligible mortgage is not necessarily a good porting option once the amount and terms are adjusted.

Will you pay a mortgage penalty when you sell?

If you pay off a closed mortgage before the end of its term, the lender may charge a prepayment penalty. According to FCAC's prepayment guidance, the calculation commonly uses the higher of three months' interest or an interest rate differential. Your actual amount depends on the contract and the lender's calculation.

An open mortgage generally permits early repayment without a prepayment penalty. Legal, discharge or administrative charges may still apply. The mortgage registered on the property you're selling must also be discharged, with the lender and lawyer handling the required steps.

Get the payout amount and any separate fees confirmed against the closing date you're considering. Don't estimate the penalty from an online example and treat it as the amount you'll owe.

Compare the complete cost, not just the interest rate

A ported rate may look attractive, especially if it differs from new mortgage offers. But the comparison also needs to include any required principal reduction, fees, remaining term, payment amount and flexibility. A new mortgage may have different costs and conditions, so ask your lender or mortgage broker to compare both paths using the same proposed purchase.

My Does Downsizing Save Money in Hamilton? guide covers that wider financial comparison. If you're considering a condo, Moving From a House to a Condo in Hamilton explains the ownership changes that go beyond the mortgage.

Can you sell first or buy first if you're porting?

Possibly, but the closing dates matter. Your lender may have restrictions on the time between selling your current home and closing on the replacement property. You also need to know what happens if either closing date changes.

If you buy before selling, temporary financing and the ability to carry both properties may need to be reviewed. Portability by itself does not establish that the purchase can be financed before your existing home closes.

Confirm the financing sequence with your lender and the legal closing arrangements with your real-estate lawyer before you agree to firm dates.

Questions to ask your lender before listing

Rather than asking only whether your mortgage is portable, ask for the details that apply to the kind of downsize you're considering:

• Is my mortgage eligible to move to the property type I'm considering? Will I need to qualify again?
• What happens if I want a smaller mortgage balance? Would any part attract a penalty?
• What are the full payout, prepayment and discharge costs if I don't port?
• How far apart can the sale and purchase closing dates be, and what happens if one is delayed?
• If I need more financing or a temporary loan, what would have to be approved?

Ask for the figures, conditions and expiry dates in writing. Your lawyer can then confirm the closing requirements, and the property search can be built around financing that is actually available.

Where the real-estate planning fits

The lender decides what mortgage options are available. My part is helping you compare your current home's likely value against realistic smaller-home options, then working through the sale and purchase timing.

That includes looking at relevant sold properties, current competition, the condition of your home and the trade-offs of a condo, townhouse or bungalow. The Hamilton downsizing service page explains how those decisions fit into a broader move.