If you’ve ever watched Star Trek, you’ll be familiar with the concept of “teleporting,” in which crew members of the Starship Enterprise are transferred from one location to another without the inconvenience of transportation (walking, driving, flying a spaceship) to get there. Mortgage porting works on the same concept: by transferring your low-rate mortgage from one house to another without refinancing or switching lenders.
If the idea sounds as far-fetched as Captain Kirk’s alien love interests, that’s because U.S. lenders don’t appear to allow mortgage porting. However, in Europe and Canada, mortgage porting is doable, and as some Canadian banks lend in the U.S.—well, you can see where this is going.
What Is Mortgage Porting?
First, let’s get a full understanding of what mortgage porting is. Mortgage porting allows you to transfer an existing mortgage from one property to another, with the same lender and the same terms, under certain conditions. Those are:
- The new home costs equal to or greater than the home you sold.
- The proceeds from the sale of your previous home go to paying off the loan on that home.
- You apply for a new mortgage for the new house and have to be approved to “port” your old mortgage over. You must meet new mortgage lending criteria, including having a high enough credit score and the right debt-to-income ratio.
Reasons to Mortgage Port
In an era of high interest rates, mortgage porting is a no-brainer. It allows people to:
- Move from house to house and keep their low interest rate.
- Create fluidity in the housing market so homeowners are not rate-locked.
- Eliminate pre-payment charges and possibly origination costs associated with switching from one bank to another.
- This allows borrowers to borrow more money if they take out a secondary loan to make up the difference in the price of a new, higher-priced home.
All this sounds wonderful in theory, but at the time of writing, it appears U.S.-based lenders do not favor mortgage porting.
“Eligibility for porting a mortgage is varied—you never know what you’re gonna get,” financial advisor James Allen of Billpin told Realtor.com. “Some lenders allow it, others don’t. And not all mortgages are portable.”
However, neither Allen nor Realtor.com specified which banks allowed it. “If the mortgage you’ll need for the new property is larger, your lender may offer you a ‘blend and extend,’” Allen continued. “It’s like mixing the old and new, where you end up with a rate that mixes your old and current rates.”
Steps to Take if You Want to Port Your Mortgage
The first step is to speak to your lender. There is a lot of conflicting information on reputable websites. Some, such as forbes.com and Realtor.com, suggest that porting a mortgage is possible in the U.S. However, mainstream lending websites such as Bank of America, Chase, or Wells Fargo do not suggest this.
Canada’s caveat
Canadian banks such as The Royal Bank of Canada allow mortgage porting and offer cross-border banking in the U.S. Its website markets this product to Canadian residents. However, a representative from RBC told BiggerPockets that U.S. citizens can get mortgages with RBC’s U.S.-based bank and would be eligible for mortgage porting when they intend to move.
Assuming a mortgage
Assuming a mortgage is mainstream American banks’ closest vehicle to mortgage porting. To quote the Bank of America website:
“A home loan assumption allows you as the buyer to accept responsibility for an existing debt secured by a mortgage on the home you’re buying. The two processes available to suit your needs are Qualified Assumptions and Name Change and Title Transfer Requests.”
Qualified Assumptions are the most common of the two, and like porting a mortgage, they require the person assuming the mortgage to be qualified for the loan. Name Change and Title Transfer Request assumptions are usually used when someone’s parents have passed away and they wish to take on the mortgage rather than sell the home.
Subject-to deals
Although subject-to-deals have also become popular recently and are somewhat similar to mortgage assumptions, they have become increasingly controversial because they violate a bank’s due-on-sale clause and are inherently more risky, operating in a legal gray area.
Final Thoughts
Mortgage porting makes sense for homebuyers and sellers, including investors. It’s hardly surprising that U.S. banks—worried they won’t be getting any new higher-interest loans on their books—have been reluctant to get on board.
However, in the big picture, creating motion in the market by encouraging people to sell their homes without fearing losing their low rates would also free up inventory for first-time buyers and flippers, who would purchase homes at current rates and thus borrow from banks and make them money. It’s a creative, logical solution that allows real estate to transact during challenging times. Once rates drop, Canadian banks could find themselves with a lot more U.S.-based borrowers.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
