Mortgage Portability: Transferring Your Loan Without Penalty
When a Quebec homeowner decides to sell their property and buy a new one mid-term, the prepayment penalty can amount to several thousand dollars. Mortgage portability offers an alternative: it allows you to transfer the existing loan, with its rate and conditions, to the new property. This contractual clause, present in the majority of major Canadian bank mortgage contracts, can save you the entire break penalty.
How Portability Works in Quebec
The portability mechanism technically involves the discharge of the mortgage on the old property and the registration of a new mortgage on the acquired property, all under the Civil Code of Quebec (CCQ). The borrower keeps the same interest rate, the same balance, and the same remaining term. The process requires a notary in Quebec for the cancellation of the old mortgage at the Land Registry and the registration of the new one. Although the loan is legally transferred, the borrower must still requalify with the lender under OSFI rules.
- Mortgage portability
- A contractual clause allowing a borrower to transfer the conditions of their current mortgage (rate, balance, remaining term) from one property to another during a simultaneous sale and purchase transaction, thus avoiding the prepayment penalty.
Conditions and Limits of Portability
- Transfer deadline: The sale of the old property and the purchase of the new one must close within a specific timeframe, generally 30 to 120 days depending on the lender. At RBC and TD, the deadline is typically 90 days. At BMO, it may reach 120 days. Missing this deadline results in losing the portability option.
- Mandatory requalification: OSFI requires the borrower to requalify under Guideline B-20, including the stress test. The borrower must demonstrate their ability to make payments at the qualifying rate, which is the higher of the contractual rate plus 2% or OSFI's qualifying rate floor.
- New property appraisal: The lender will appraise the new property to ensure it meets their criteria. If the value is insufficient relative to the transferred loan amount, the loan-to-value ratio may be unacceptable and portability refused.
- Compatible mortgage type: Portability is generally offered on conventional fixed-rate mortgages. Variable-rate mortgages, collateral mortgages, and certain combined products (e.g., Manulife One) may have different restrictions. Check the specific conditions of your contract.
Portability With an Increased Amount
If your new property costs more than the old one and you need a larger mortgage amount, most lenders offer supplemental financing. The original loan amount keeps its current rate, while the additional amount is financed at the current market rate. The resulting rate is a weighted average of the two rates. This approach, similar to a blend-and-extend, allows you to partially benefit from the favourable original rate while accessing the additional funds needed.
Legal Aspects in Quebec
Under Quebec civil law, a mortgage is an accessory real right that encumbers a specific immovable (art. 2660 CCQ). Portability therefore involves cancelling the mortgage on the old property and creating a new mortgage on the new property. These operations must be performed by a notary and published at the Quebec Land Registry. Legal fees for portability are generally comparable to those for a standard refinance, ranging from $1,000 to $1,800. Some lenders offer partial rebates on legal fees to encourage borrowers to exercise portability rather than switching lenders.