National Bank of Canada no longer allows customers to transfer their existing mortgages after purchasing new properties, meaning clients hoping to move to new homes can’t hold on to low interest rates locked in before the recent surge in borrowing costs.
The change, which applies nationwide, was implemented on June 30 as part of “a regular review” of the bank’s service offerings, National Bank spokesperson Alexandre Guay said in an e-mail. The lender did not answer a question about whether it had alerted clients who might be affected by the decision, but Mr. Guay noted that the move “did not involve any modifications to mortgage contracts, which must be communicated formally.”
In an e-mail to a borrower reviewed by The Globe and Mail, National Bank said it had stopped offering rollover mortgages, which it described as a “financing solution” that allowed borrowers to transfer the interest rate, remaining balance and remaining term of an existing mortgage to a new loan. The feature, which is offered by other lenders, is also commonly known as mortgage portability.
The recipient of the e-mail, a National Bank customer in Southern Ontario, said the change had forced him and his wife to scuttle plans to buy a bigger home that would better accommodate his disability and the couple’s baby.
The Globe agreed not to identify the customer because he works in finance and is concerned about potential career repercussions for speaking publicly.
The homeowner said he and his wife were counting on their ability to port their existing five-year fixed-rate mortgage, which they signed up for in 2021 at a rate below two per cent.
The rollover mortgage feature was one of the reasons the couple decided to sign with National Bank. When they started house hunting in the fall of this year, he said, the lender told them the rollover option was no longer on the table.
The customer said National Bank told him it wasn’t required to notify clients that it was scrapping rollovers, because the feature isn’t part of its mortgage terms and conditions. He said he felt blindsided by the change.
Portability is common among fixed-rate mortgages, especially those offered by larger lenders, said Robert McLister, an interest rate analyst and mortgage planner. And the feature is typically included in mortgage contracts, he added.
Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank all said in statements that they currently allow portability on all or some of their mortgages, and that the feature is part of the loans’ standard terms and conditions.
RBC said it had recently introduced additional flexibility for portable mortgages. The other banks said they have not changed their rules on portability over the past year.
Porting a mortgage in the current rising-rate environment allows a borrower to avoid shouldering higher borrowing costs on the full amount of a new and larger loan, Mr. McLister said. In some cases, lenders apply the higher rate only to any additional money borrowed, or will charge a rate that is a weighted average of the old and the new mortgage rate, he said.
Porting may also lower the bar for borrowers to clear the federal mortgage stress test, because looser testing requirements usually apply to the mortgage balance that is being transferred, he added.
The National Bank customer said he and his wife are currently weighing whether they’ll have to put plans to have another child on hold until they’re able to buy a new home.