Portability vs Refinancing: How to Choose the Right Strategy
When considering selling your property in Quebec to purchase another, the question of your current mortgage inevitably arises. Two main strategies are available: portability, which allows you to transfer your existing mortgage to the new property, and full refinancing, which involves taking out a new mortgage loan. The optimal choice depends on several interrelated factors: your current rate compared to market rates, the potential breakage penalty amount, the amount of new financing required, your qualification ability under OSFI rules, and the time between selling and buying. A rigorous analysis of these factors is essential to maximize your financial advantage in this real estate transition.
Understanding Mortgage Portability
Mortgage portability is a contractual clause that allows you to transfer the conditions of your current loan — interest rate, balance, remaining term, and prepayment privileges — to a new property. In Quebec, this option is offered by most major financial institutions, including Canada's six major banks and Desjardins caisses, but conditions vary significantly from one lender to another. The typical portability window is between 30 and 120 days: you must complete the purchase of the new property within this timeframe after selling the old one. If the new loan is larger than the old one, the difference is financed at a new rate and the whole package is combined in an arrangement similar to blend-and-extend. Some lenders require the new property to be in the same province, while others allow interprovincial transfers.
Decision Tree: Portability or Refinancing
- Is your current rate below market rate?: If yes, portability could allow you to keep this advantage. If your rate is 3.5% and the market offers 4.5%, transferring that rate represents considerable savings. If no, refinancing with a new lower rate is likely preferable.
- Is the new loan amount similar to the old one?: If the new required financing is close to the current balance (plus or minus 10%), direct portability is straightforward. If you need a significantly higher amount (e.g., buying a more expensive property), the additional portion will be at a new rate, which dilutes the portability advantage.
- Can you meet the portability window?: Most lenders require the purchase to be completed within 30 to 120 days of the sale. If you sell first and rent temporarily before buying, this window could be exceeded, making portability impossible.
- Do you pass the requalification test?: Even with portability, most lenders require requalification under OSFI's B-20 rules. If your financial situation has changed unfavourably, you may not requalify for the same amount.
- Do you want to switch lenders?: Portability locks you in with your current lender. If other lenders offer significantly better conditions (better rate, more generous prepayment privileges), full refinancing with a new lender could be more advantageous despite the penalty.
Detailed Financial Comparison
- Portability — typical costs: Notary fees for the new mortgage ($1,200 to $2,000), appraisal fees for the new property ($350 to $500), cancellation fees for the old mortgage at the Land Registry ($250 to $350). Estimated total: $1,800 to $2,850. No breakage penalty.
- Refinancing — typical costs: IRD breakage penalty ($5,000 to $25,000 for fixed rate) or 3 months' interest ($2,500 to $5,000 for variable rate), notary fees ($1,200 to $2,500), appraisal fees ($350 to $500), discharge fees ($250 to $350). Estimated total: $4,300 to $28,350 depending on rate type.
- Potential refinancing savings: Access to the best market rate, ability to consolidate debts, ability to withdraw equity, choice of optimal lender. These advantages can offset the higher costs over the duration of the new term.
The final decision must integrate not only the immédiate financial comparison but also long-term considerations. An AMF-certified mortgage broker can simulate both scenarios using your actual numbers and current rates from over 30 lenders, allowing you to clearly see which path maximizes your total financial advantage. In many cases, the answer is not obvious without this personalized analysis, as the variables interact in a non-linear manner.
- Mortgage portability
- A contractual clause allowing the transfer of existing mortgage conditions (rate, remaining term, privileges) from a sold property to a newly acquired property, without breakage penalty. Available with most Canadian lenders, subject to timing conditions (30-120 days), requalification requirements, and sometimes geographic location of the new property.