Could Mortgage Porting Be the Fresh Solution for Investors Facing High Interest Rates?

If you've ever indulged in Star Trek, you're probably acquainted with the notion of "teleporting," where crew members of the Starship Enterprise effortlessly shift from one point to another, bypassing the need for conventional transportation methods like walking or flying a spaceship. Mortgage porting operates on a similar principle: it enables you to transfer your existing low-rate mortgage from one property to another without the hassle of refinancing or changing lenders.

While the concept might seem as outlandish as Captain Kirk's extraterrestrial romances, mortgage porting isn't a fantasy in Europe and Canada. Some Canadian banks extend their services to the U.S., paving the way for this practice.

What Exactly is Mortgage Porting?

Let's delve into the definition of mortgage porting. It allows you to shift your current mortgage from one property to another, maintaining the same terms and lender, provided certain conditions are met:

The new property's value equals or exceeds that of the one you're selling.

The proceeds from selling your previous property go towards settling its loan.

You apply for a new mortgage for the new property and need approval to "port" your existing mortgage. This entails meeting new lending criteria, such as a sufficient credit score and an appropriate debt-to-income ratio.

Benefits of Mortgage Porting

In an era marked by soaring interest rates, mortgage porting emerges as an advantageous option, offering individuals the ability to:

The transition between properties while retaining a low interest rate.

Foster flexibility in the housing market, freeing homeowners from being locked into rates.

Sidestep pre-payment penalties and potentially avoid origination costs associated with switching lenders.

Access additional funds by taking out a secondary loan to cover the price difference for a more expensive new home.

While these benefits seem promising, it's worth noting that U.S.-based lenders currently show limited favorability towards mortgage porting.

Navigating Mortgage Porting: Steps to Follow

The initial step involves consulting your lender, although there's conflicting information across reputable sources. While some sources suggest mortgage porting is viable in the U.S., major lending institutions like Bank of America, Chase, or Wells Fargo don't provide indications to support this claim.

A Canadian Perspective

Canadian banks like The Royal Bank of Canada permit mortgage porting and extend their services to the U.S. through cross-border banking. However, according to an RBC representative, U.S. citizens can secure mortgages with RBC's U.S.-based arm and qualify for mortgage porting when relocating.

Alternative Approaches: Assuming a Mortgage

For U.S. consumers, assuming a mortgage serves as the closest equivalent to mortgage porting. Bank of America describes it as a process where a buyer assumes responsibility for an existing mortgage debt secured by the purchased home, provided they qualify for the loan.

Subject-to Deals

Subject-to deals, although similar to mortgage assumptions, have garnered controversy due to their violation of a bank's due-on-sale clause, rendering them more precarious and legally ambiguous.

Closing Thoughts

Despite the potential benefits for homebuyers, sellers, and investors, U.S. banks exhibit hesitance towards embracing mortgage porting, possibly due to concerns about acquiring new, higher-interest loans. However, facilitating movement in the market by enabling homeowners to sell without forfeiting their favorable rates could stimulate inventory turnover, benefiting first-time buyers and property investors alike. This innovative, logical approach ensures real estate transactions can proceed even in challenging economic climates, presenting a promising prospect for Canadian banks as U.S.-based borrowers seek favorable terms.

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