What Happens to Your Mortgage When You Sell Your House?

By Brennan Valenzuela
Ratehub.ca

"I came here tonight because when you realize you want to spend the rest of your life with somebody, you want the rest of your life to start as soon as possible."

That was a line from the movie, "When Harry Met Sally," a romantic comedy about an unlikely pair of people coming together. In typical Hollywood fashion, the credits start rolling the moment one character professes their undying love for the other. What happens after Harry marries Sally? Well, they sit down and start looking for their first home. Let's assume Harry and Sally compared mortgage rates and locked in a great rate on a 5-year mortgage term to finance the purchase of their home.Now what happens if after three years, the happy couple decides to sell their starter home and purchase a new house? Their 5-year mortgage term contract still has two years left so do they acquire a new mortgage and cancel the existing one? If they do, Harry and Sally will be forced to pay a penalty fee for breaking their mortgage contract early.

This following situation is actually quite common, as 70% of first-time home buyers break their 5-year term around the three-and-a-half-year mark. For Harry and Sally's situation, the best option would be to 'port their mortgage.' This means their existing mortgage balance would be transferred from their old property to their new one. The couple should take notice though as portability is a mortgage feature that should've been looked into before they signed their mortgage contract. Also, not all lenders allow their clients to port their mortgage. A good mortgage broker would be able to identify which banks allow mortgage porting and which ones do not.

Not all mortgage portability clauses are the same, there is a lot of variance between lender policies that stipulate how much time you are allowed to port between the close of the sale of your current home, to the close of the sale of your new purchase. The date range varies between 30 to 120 days.

Portability is a feature that could end up saving the Harry's thousands of dollars in mortgage breakage penalty fees. Money that potentially could have gone to their 'restaurant' budget, since Harry and Sally love eating in NYC diners so much – much to the chagrin of other patrons (ahem).